Table of Contents
CONSOLIDATED FINANCIAL STATEMENTS
F-1
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Alere Inc.,
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of equity, of comprehensive income (loss) and of cash flows present fairly, in all material respects, the financial position of Alere Inc. and its subsidiaries at December 31, 2012 and December 31, 2011, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, filed with the SEC on March 1, 2013. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As described in Management’s Annual Report on Internal Control over Financial Reporting, management has excluded 14 entities from its assessment of internal control over financial reporting as of December 31, 2012 because they were acquired by the Company in purchase business combinations during 2012. We have also excluded these entities from our audit of internal control over financial reporting. The total assets and net revenue of these entities represented 1% and 5%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2012.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 1, 2013, except for Note 24 as to which the date is April 5, 2013
F-2
Table of Contents
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Year Ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
Net product sales | $ | 1,913,731 | $ | 1,683,132 | $ | 1,472,403 | ||||||
Services revenue | 876,518 | 679,922 | 662,185 | |||||||||
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Net product sales and services revenue | 2,790,249 | 2,363,054 | 2,134,588 | |||||||||
License and royalty revenue | 28,576 | 23,473 | 20,759 | |||||||||
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Net revenue | 2,818,825 | 2,386,527 | 2,155,347 | |||||||||
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Cost of net product sales | 932,150 | 795,424 | 688,325 | |||||||||
Cost of services revenue | 450,999 | 338,232 | 325,286 | |||||||||
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Cost of net product sales and services revenue | 1,383,149 | 1,133,656 | 1,013,611 | |||||||||
Cost of license and royalty revenue | 7,354 | 7,036 | 7,149 | |||||||||
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Cost of net revenue | 1,390,503 | 1,140,692 | 1,020,760 | |||||||||
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Gross profit | 1,428,322 | 1,245,835 | 1,134,587 | |||||||||
Operating expenses: | ||||||||||||
Research and development | 183,001 | 150,165 | 133,278 | |||||||||
Sales and marketing | 643,423 | 565,583 | 499,124 | |||||||||
General and administrative | 492,766 | 399,330 | 446,917 | |||||||||
Goodwill impairment charge | — | 383,612 | 1,006,357 | |||||||||
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Operating income (loss) | 109,132 | (252,855 | ) | (951,089 | ) | |||||||
Interest expense, including amortization of original issue discounts and deferred financing costs | (240,560 | ) | (203,971 | ) | (139,435 | ) | ||||||
Other income (expense), net | 9,957 | 1,883 | 22,738 | |||||||||
Gain on sale of joint venture interest | — | 288,896 | — | |||||||||
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Loss from continuing operations before benefit for income taxes | (121,471 | ) | (166,047 | ) | (1,067,786 | ) | ||||||
Benefit for income taxes | (30,319 | ) | (24,214 | ) | (29,931 | ) | ||||||
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Loss from continuing operations before equity earnings of unconsolidated entities, net of tax | (91,152 | ) | (141,833 | ) | (1,037,855 | ) | ||||||
Equity earnings of unconsolidated entities, net of tax | 13,245 | 8,524 | 10,566 | |||||||||
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Loss from continuing operations | (77,907 | ) | (133,309 | ) | (1,027,289 | ) | ||||||
Income from discontinued operations, net of tax | — | — | 11,397 | |||||||||
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Net loss | (77,907 | ) | (133,309 | ) | (1,015,892 | ) | ||||||
Less: Net income attributable to non-controlling interests | 275 | 233 | 1,418 | |||||||||
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Net loss attributable to Alere Inc. and Subsidiaries | (78,182 | ) | (133,542 | ) | (1,017,310 | ) | ||||||
Preferred stock dividends | (21,293 | ) | (22,049 | ) | (24,235 | ) | ||||||
Preferred stock repurchase | — | 23,936 | — | |||||||||
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Net loss available to common stockholders | $ | (99,475 | ) | $ | (131,655 | ) | $ | (1,041,545 | ) | |||
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Basic and diluted net loss per common share attributable to Alere Inc. and Subsidiaries: | ||||||||||||
Loss from continuing operations | �� | $ | (1.23 | ) | $ | (1.58 | ) | $ | (12.47 | ) | ||
Income from discontinued operations | — | — | 0.14 | |||||||||
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Net loss per common share | $ | (1.23 | ) | $ | (1.58 | ) | $ | (12.33 | ) | |||
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Weighted-average shares — basic and diluted | 80,587 | 83,128 | 84,445 | |||||||||
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The accompanying notes are an integral part of these consolidated financial statements.
F-3
Table of Contents
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Year Ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
Net loss | $ | (77,907 | ) | $ | (133,309 | ) | $ | (1,015,892 | ) | |||
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Other comprehensive income (loss), before tax: | ||||||||||||
Changes in cumulative translation adjustment | 54,642 | (35,830 | ) | (210 | ) | |||||||
Unrealized gains (losses) on available for sale securities | (216 | ) | (471 | ) | 1,151 | |||||||
Unrealized gains on hedging instruments | 388 | 11,504 | 3,965 | |||||||||
Minimum pension liability adjustment | (1,042 | ) | (3,070 | ) | (113 | ) | ||||||
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Other comprehensive income (loss), before tax | 53,772 | (27,867 | ) | 4,793 | ||||||||
Income tax provision (benefit) related to items of other comprehensive income (loss) | (372 | ) | 3,093 | 1,649 | ||||||||
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Other comprehensive income (loss), net of tax | 54,144 | (30,960 | ) | 3,144 | ||||||||
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Comprehensive loss | (23,763 | ) | (164,269 | ) | (1,012,748 | ) | ||||||
Less: Comprehensive income attributable to non-controlling interests | 275 | 233 | 1,418 | |||||||||
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Comprehensive loss attributable to Alere Inc. and Subsidiaries | $ | (24,038 | ) | $ | (164,502 | ) | $ | (1,014,166 | ) | |||
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The accompanying notes are an integral part of these consolidated financial statements.
F-4
Table of Contents
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value amounts)
As of December 31, | ||||||||
2012 | 2011 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 328,346 | $ | 299,173 | ||||
Restricted cash | 3,076 | 8,987 | ||||||
Marketable securities | 904 | 1,086 | ||||||
Accounts receivable, net of allowances of $36,396 and $24,577 at December 31, 2012 and December 31, 2011, respectively | 524,332 | 475,824 | ||||||
Inventories, net | 337,121 | 320,269 | ||||||
Deferred tax assets | 67,722 | 42,975 | ||||||
Prepaid expenses and other current assets | 145,236 | 145,413 | ||||||
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Total current assets | 1,406,737 | 1,293,727 | ||||||
Property, plant and equipment, net | 534,469 | 491,205 | ||||||
Goodwill | 3,048,405 | 2,821,271 | ||||||
Other intangible assets with indefinite lives | 36,451 | 69,546 | ||||||
Finite-lived intangible assets, net | 1,834,225 | 1,785,925 | ||||||
Deferred financing costs, net, and other non-current assets | 108,857 | 113,241 | ||||||
Investments in unconsolidated entities | 90,491 | 85,138 | ||||||
Marketable securities | — | 2,254 | ||||||
Deferred tax assets | 8,293 | 10,394 | ||||||
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Total assets | $ | 7,067,928 | $ | 6,672,701 | ||||
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LIABILITIES AND EQUITY | ||||||||
Current liabilities: | ||||||||
Current portion of long-term debt | $ | 60,232 | $ | 61,092 | ||||
Current portion of capital lease obligations | 6,684 | 6,083 | ||||||
Short-term debt | — | 6,240 | ||||||
Accounts payable | 169,974 | 155,464 | ||||||
Accrued expenses and other current liabilities | 411,919 | 395,573 | ||||||
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Total current liabilities | 648,809 | 624,452 | ||||||
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Long-term liabilities: | ||||||||
Long-term debt, net of current portion | 3,628,675 | 3,267,451 | ||||||
Capital lease obligations, net of current portion | 12,917 | 12,629 | ||||||
Deferred tax liabilities | 428,188 | 380,700 | ||||||
Other long-term liabilities | 166,635 | 153,398 | ||||||
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Total long-term liabilities | 4,236,415 | 3,814,178 | ||||||
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Commitments and contingencies(Notes 8, 9 and 11) | ||||||||
Redeemable non-controlling interest | — | 2,497 | ||||||
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Stockholders’ equity: | ||||||||
Series B preferred stock, $0.001 par value (liquidation preference: $709,763 at December 31, 2012 and 2011); Authorized: 2,300 shares; Issued: 2,065 shares at December 31, 2012 and 2011; Outstanding: 1,774 shares at December 31, 2012 and 2011 | 606,468 | 606,468 | ||||||
Common stock, $0.001 par value; Authorized: 200,000 shares; Issued: 88,576 shares at December 31, 2012 and 87,647 shares at December 31, 2011; Outstanding: 80,897 shares at December 31, 2011 and 79,968 shares at December 31, 2011 | 89 | 88 | ||||||
Additional paid-in capital | 3,299,935 | 3,324,710 | ||||||
Accumulated deficit | (1,564,973 | ) | (1,486,791 | ) | ||||
Treasury stock, at cost, 7,679 shares at December 31, 2012 and 2011 | (184,971 | ) | (184,971 | ) | ||||
Accumulated other comprehensive income (loss) | 23,874 | (30,270 | ) | |||||
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Total stockholders’ equity | 2,180,422 | 2,229,234 | ||||||
Non-controlling interests | 2,282 | 2,340 | ||||||
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Total equity | 2,182,704 | 2,231,574 | ||||||
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Total liabilities and equity | $ | 7,067,928 | $ | 6,672,701 | ||||
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The accompanying notes are an integral part of these consolidated financial statements.
F-5
Table of Contents
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands)
Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Compre- hensive Income (Loss) | Treasury Stock, at cost | Total Stockholders’ Equity | Non- controlling Interest | Total Equity | Redeemable Non- controlling Interest | ||||||||||||||||||||||||||||||||||||||||||||
Preferred Stock | Number of Shares | $0.001 Par Value | ||||||||||||||||||||||||||||||||||||||||||||||||||
Number of Shares | Amount | Number of Shares | Value | |||||||||||||||||||||||||||||||||||||||||||||||||
BALANCE, DECEMBER 31, 2009 | 1,984 | $ | 694,427 | 83,567 | $ | 84 | $ | 3,195,476 | $ | (359,874 | ) | $ | (2,454 | ) | 21 | $ | (104 | ) | $ | 3,527,555 | $ | 1,334 | $ | 3,528,889 | $ | — | ||||||||||||||||||||||||||
Issuance of common stock and warrants in connection with acquisitions | — | — | 536 | — | 16,276 | — | — | — | — | 16,276 | — | 16,276 | — | |||||||||||||||||||||||||||||||||||||||
Exercise of common stock options, warrants and shares issued under employee stock purchase plan | — | — | 825 | 1 | 19,024 | — | — | — | — | 19,025 | — | 19,025 | — | |||||||||||||||||||||||||||||||||||||||
Preferred stock dividends | 107 | 24,127 | — | — | (24,279 | ) | — | — | — | — | (152 | ) | — | (152 | ) | — | ||||||||||||||||||||||||||||||||||||
Forfeiture of restricted stock awards | — | — | — | — | — | — | — | 3 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Stock-based compensation related to grants of common stock options | — | — | — | — | 29,879 | — | — | — | — | 29,879 | — | 29,879 | — | |||||||||||||||||||||||||||||||||||||||
Excess tax benefits on exercised stock options | — | — | — | — | 789 | — | — | — | — | 789 | — | 789 | — | |||||||||||||||||||||||||||||||||||||||
Minimum pension liability adjustment, net of tax | — | — | — | — | — | — | (113 | ) | — | — | (113 | ) | — | (113 | ) | — | ||||||||||||||||||||||||||||||||||||
Changes in cumulative translation adjustment, net of tax | — | — | — | — | — | — | (210 | ) | — | — | (210 | ) | — | (210 | ) | — | ||||||||||||||||||||||||||||||||||||
Unrealized gain on interest rate swap, | — | — | — | — | — | — | 2,423 | — | — | 2,423 | — | 2,423 | — | |||||||||||||||||||||||||||||||||||||||
Unrealized gain on available-for-sale securities, net of tax | — | — | — | — | — | — | 1,044 | — | — | 1,044 | — | 1,044 | — | |||||||||||||||||||||||||||||||||||||||
Acquisition of non-controlling interests | — | — | — | — | (4,168 | ) | — | — | — | — | (4,168 | ) | 1,251 | (2,917 | ) | (1,315 | ) | |||||||||||||||||||||||||||||||||||
Redeemable non-controlling interest in subsidiaries’ income | — | — | — | — | — | — | — | — | — | — | (1,315 | ) | (1,315 | ) | 1,315 | |||||||||||||||||||||||||||||||||||||
Net income (loss) | — | — | — | — | — | (1,017,310 | ) | — | — | — | (1,017,310 | ) | 1,418 | (1,015,892 | ) | — | ||||||||||||||||||||||||||||||||||||
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BALANCE, DECEMBER 31, 2010 | 2,091 | $ | 718,554 | 84,928 | $ | 85 | $ | 3,232,997 | $ | (1,377,184 | ) | $ | 690 | 24 | $ | (104 | ) | $ | 2,575,038 | $ | 2,688 | $ | 2,577,726 | $ | — | |||||||||||||||||||||||||||
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F-6
Table of Contents
ALERE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY (Continued)
(in thousands)
Preferred Stock | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Compre- hensive Income (Loss) | Treasury Stock, at cost | Total Stockholders’ Equity | Non- controlling Interest | Total Equity | Redeemable Non- controlling Interest | |||||||||||||||||||||||||||||||||||||||||||
Number of Shares | $0.001 Par Value | |||||||||||||||||||||||||||||||||||||||||||||||||||
Number of Shares | Amount | Number of Shares | Value | |||||||||||||||||||||||||||||||||||||||||||||||||
BALANCE, DECEMBER 31, 2010 | 2,091 | $ | 718,554 | 84,928 | $ | 85 | $ | 3,232,997 | $ | (1,377,184 | ) | $ | 690 | 24 | $ | (104 | ) | $ | 2,575,038 | $ | 2,688 | $ | 2,577,726 | $ | — | |||||||||||||||||||||||||||
Issuance of common stock in connection with acquisitions | — | — | 832 | 1 | 16,183 | — | — | — | — | 16,184 | — | 16,184 | — | |||||||||||||||||||||||||||||||||||||||
Exercise of common stock options, warrants and shares issued under employee stock purchase plan | — | — | 1,887 | 2 | 37,885 | — | — | — | — | 37,887 | — | 37,887 | — | |||||||||||||||||||||||||||||||||||||||
Repurchase of common stock | — | — | — | — | — | — | — | 7,655 | (184,867 | ) | (184,867 | ) | — | (184,867 | ) | — | ||||||||||||||||||||||||||||||||||||
Repurchase of preferred stock | (358 | ) | (123,005 | ) | — | — | — | 23,935 | — | — | — | (99,070 | ) | — | (99,070 | ) | — | |||||||||||||||||||||||||||||||||||
Preferred stock dividends | 41 | 10,919 | — | — | (21,632 | ) | — | — | — | — | (10,713 | ) | — | (10,713 | ) | — | ||||||||||||||||||||||||||||||||||||
Stock-based compensation related to grants of common stock options | — | — | — | — | 21,215 | — | — | — | — | 21,215 | — | 21,215 | — | |||||||||||||||||||||||||||||||||||||||
Excess tax benefits on exercised stock options | — | — | — | — | 3,423 | — | — | — | — | 3,423 | — | 3,423 | — | |||||||||||||||||||||||||||||||||||||||
Minimum pension liability adjustment, net of tax | — | — | — | — | — | — | (1,618 | ) | — | — | (1,618 | ) | — | (1,618 | ) | — | ||||||||||||||||||||||||||||||||||||
Changes in cumulative translation adjustment, net of tax | — | — | — | — | — | — | (35,830 | ) | — | — | (35,830 | ) | — | (35,830 | ) | — | ||||||||||||||||||||||||||||||||||||
Unrealized gain on hedging instruments, net of tax | — | — | — | — | (297 | ) | — | 6,855 | — | — | 6,558 | — | 6,558 | — | ||||||||||||||||||||||||||||||||||||||
Unrealized loss on available-for-sale securities, net of tax | — | — | — | — | — | — | (367 | ) | — | — | (367 | ) | — | (367 | ) | — | ||||||||||||||||||||||||||||||||||||
Acquisition of non-controlling interests | — | — | — | — | — | — | — | — | — | — | 34,936 | 34,936 | — | |||||||||||||||||||||||||||||||||||||||
Purchase of subsidiary shares from non-controlling interest | — | — | — | — | 34,936 | — | — | — | — | 34,936 | (34,936 | ) | — | 2,500 | ||||||||||||||||||||||||||||||||||||||
Dividend relating to non-controlling interest | — | — | — | — | — | — | — | — | — | — | (584 | ) | (584 | ) | — | |||||||||||||||||||||||||||||||||||||
Redeemable non-controlling interest in subsidiaries’ income | — | — | — | — | — | — | — | — | — | — | 3 | 3 | (3 | ) | ||||||||||||||||||||||||||||||||||||||
Net income (loss) | — | — | — | — | — | (133,542 | ) | — | — | — | (133,542 | ) | 233 | (133,309 | ) | — | ||||||||||||||||||||||||||||||||||||
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BALANCE, DECEMBER 31, 2011 | 1,774 | $ | 606,468 | 87,647 | $ | 88 | $ | 3,324,710 | $ | (1,486,791 | ) | $ | (30,270 | ) | 7,679 | $ | (184,971 | ) | $ | 2,229,234 | $ | 2,340 | $ | 2,231,574 | $ | 2,497 | ||||||||||||||||||||||||||
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F-7
Table of Contents
ALERE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY (Continued)
(in thousands)
Preferred Stock | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Compre- hensive Income (Loss) | Treasury Stock, at cost | Total Stockholders’ Equity | Non- controlling Interest | Total Equity | Redeemable Non- controlling Interest | |||||||||||||||||||||||||||||||||||||||||||
Number of Shares | $0.001 Par Value | |||||||||||||||||||||||||||||||||||||||||||||||||||
Number of Shares | Amount | Number of Shares | Value | |||||||||||||||||||||||||||||||||||||||||||||||||
BALANCE, DECEMBER 31, 2011 | 1,774 | $ | 606,468 | 87,647 | $ | 88 | $ | 3,324,710 | $ | (1,486,791 | ) | $ | (30,270 | ) | 7,679 | $ | (184,971 | ) | $ | 2,229,234 | $ | 2,340 | $ | 2,231,574 | $ | 2,497 | ||||||||||||||||||||||||||
Exercise of common stock options, warrants and shares issued under employee stock purchase plan | — | — | 862 | 1 | 14,923 | — | — | — | — | 14,924 | — | 14,924 | — | |||||||||||||||||||||||||||||||||||||||
Issuance of common stock for settlement of an acquisition-related contingent consideration obligation | — | — | 67 | — | 1,243 | — | — | — | — | 1,243 | — | 1,243 | — | |||||||||||||||||||||||||||||||||||||||
Preferred stock dividends | — | — | — | — | (21,293 | ) | — | — | — | — | (21,293 | ) | — | (21,293 | ) | — | ||||||||||||||||||||||||||||||||||||
Stock-based compensation related to grants of common stock options | — | — | — | — | 15,665 | — | — | — | — | 15,665 | — | 15,665 | — | |||||||||||||||||||||||||||||||||||||||
Excess tax benefits on exercised stock options | — | — | — | — | (234 | ) | — | — | — | — | (234 | ) | — | (234 | ) | — | ||||||||||||||||||||||||||||||||||||
Minimum pension liability adjustment, net of tax | — | — | — | — | — | — | (756 | ) | — | — | (756 | ) | — | (756 | ) | — | ||||||||||||||||||||||||||||||||||||
Changes in cumulative translation adjustment, net of tax | — | — | — | — | — | — | 54,642 | — | — | 54,642 | — | 54,642 | — | |||||||||||||||||||||||||||||||||||||||
Unrealized gain on hedging instruments, net of tax | — | — | — | — | — | — | 388 | — | — | 388 | — | 388 | — | |||||||||||||||||||||||||||||||||||||||
Unrealized loss on available-for-sale securities, net of tax | — | — | — | — | — | — | (130 | ) | — | — | (130 | ) | — | (130 | ) | — | ||||||||||||||||||||||||||||||||||||
Purchase of subsidiary shares from non-controlling interest (Note 5) | — | — | — | — | (35,079 | ) | — | — | — | — | (35,079 | ) | — | (35,079 | ) | (2,433 | ) | |||||||||||||||||||||||||||||||||||
Dividend relating to non-controlling interest | — | — | — | — | — | — | — | — | — | — | (396 | ) | (396 | ) | — | |||||||||||||||||||||||||||||||||||||
Net income (loss) | — | — | — | — | — | (78,182 | ) | — | — | — | (78,182 | ) | 338 | (77,844 | ) | (64 | ) | |||||||||||||||||||||||||||||||||||
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BALANCE, DECEMBER 31, 2012 | 1,774 | $ | 606,468 | 88,576 | $ | 89 | $ | 3,299,935 | $ | (1,564,973 | ) | $ | 23,874 | 7,679 | $ | (184,971 | ) | $ | 2,180,422 | $ | 2,282 | $ | 2,182,704 | $ | — | |||||||||||||||||||||||||||
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F-8
Table of Contents
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For The Year Ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
Cash Flows from Operating Activities: | ||||||||||||
Net loss | $ | (77,907 | ) | $ | (133,309 | ) | $ | (1,015,892 | ) | |||
Income from discontinued operations, net of tax | — | — | 11,397 | |||||||||
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Loss from continuing operations | (77,907 | ) | (133,309 | ) | (1,027,289 | ) | ||||||
Adjustments to reconcile loss from continuing operations to net cash | ||||||||||||
Non-cash interest expense, including amortization of original issue discounts | 21,490 | 37,590 | 13,758 | |||||||||
Depreciation and amortization | 456,847 | 391,576 | 366,188 | |||||||||
Non-cash charges for sale of inventories revalued at the date of acquisition | 4,681 | 6,010 | 6,602 | |||||||||
Non-cash stock-based compensation expense | 15,665 | 21,215 | 29,879 | |||||||||
Impairment of inventory | 295 | 445 | 848 | |||||||||
Impairment of long-lived assets | 3,489 | 1,549 | 1,411 | |||||||||
Impairment of goodwill | — | 383,612 | 1,006,357 | |||||||||
Impairment of intangible assets | 2,988 | 2,938 | — | |||||||||
Gain on sale of joint venture interest | — | (288,896 | ) | — | ||||||||
(Gain) loss on sale of fixed assets | (2,151 | ) | 1,577 | 998 | ||||||||
Gain on sales of marketable securities | (751 | ) | (840 | ) | (4,504 | ) | ||||||
Equity earnings of unconsolidated entities, net of tax | (13,245 | ) | (8,524 | ) | (10,566 | ) | ||||||
Deferred income taxes | (84,568 | ) | (56,761 | ) | (74,418 | ) | ||||||
Other non-cash items | 30,571 | (12,247 | ) | 3,802 | ||||||||
Changes in assets and liabilities, net of acquisitions: | ||||||||||||
Accounts receivable, net | (22,165 | ) | (39,408 | ) | (9,360 | ) | ||||||
Inventories, net | (16,791 | ) | (20,399 | ) | (22,845 | ) | ||||||
Prepaid expenses and other current assets | (2,526 | ) | (53,115 | ) | 8,310 | |||||||
Accounts payable | (10,127 | ) | 6,985 | (9,088 | ) | |||||||
Accrued expenses and other current liabilities | 49,431 | 14,282 | 22,202 | |||||||||
Other non-current liabilities | (35,543 | ) | 16,973 | (27,452 | ) | |||||||
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Net cash provided by continuing operations | 319,683 | 271,253 | 274,833 | |||||||||
Net cash provided by discontinued operations | — | — | 591 | |||||||||
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Net cash provided by operating activities | 319,683 | 271,253 | 275,424 | |||||||||
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Cash Flows from Investing Activities: | ||||||||||||
(Increase) decrease in restricted cash | 5,911 | (6,406 | ) | (141 | ) | |||||||
Purchases of property, plant and equipment | (137,393 | ) | (132,532 | ) | (96,241 | ) | ||||||
Proceeds from sale of property, plant and equipment | 22,390 | 947 | 795 | |||||||||
Proceeds from disposition of business | — | 11,491 | — | |||||||||
Cash paid for acquisitions, net of cash acquired | (424,586 | ) | (631,311 | ) | (523,507 | ) | ||||||
Proceeds from sales of marketable securities | 3,056 | 9,202 | 3,182 | |||||||||
Net cash received from (paid for) equity method investments | 12,707 | (121,903 | ) | 12,354 | ||||||||
Increase in other assets | (56,276 | ) | (27,684 | ) | (12,900 | ) | ||||||
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Net cash used in continuing operations | (574,191 | ) | (898,196 | ) | (616,458 | ) | ||||||
Net cash provided by discontinued operations | — | — | 62,596 | |||||||||
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Net cash used in investing activities | (574,191 | ) | (898,196 | ) | (553,862 | ) | ||||||
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Cash Flows from Financing Activities: | ||||||||||||
Cash paid for financing costs | (10,139 | ) | (74,680 | ) | (13,045 | ) | ||||||
Cash paid for contingent purchase price consideration | (20,964 | ) | (28,305 | ) | — | |||||||
Cash paid for dividends | (21,293 | ) | (5,425 | ) | — | |||||||
Proceeds from issuance of common stock, net of issuance costs | 14,924 | 37,886 | 19,024 | |||||||||
Repurchase of preferred stock | — | (99,070 | ) | — | ||||||||
Proceeds from issuance of long-term debt | 648,535 | 2,096,277 | 400,000 | |||||||||
Payments on short-term debt | (6,240 | ) | — | — | ||||||||
Payments on long-term debt | (311,612 | ) | (1,207,454 | ) | (9,750 | ) | ||||||
Net proceeds (payments) under revolving credit facilities | 14,272 | 10,715 | (146,781 | ) | ||||||||
Repurchase of common stock | — | (184,867 | ) | — | ||||||||
Excess tax benefits on exercised stock options | 504 | 3,423 | 1,683 | |||||||||
Principal payments on capital lease obligations | (7,003 | ) | (4,163 | ) | (1,867 | ) | ||||||
Purchase of non-controlling interest | (2,972 | ) | — | (52,864 | ) | |||||||
Other | (12,267 | ) | (4,257 | ) | (141 | ) | ||||||
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Net cash provided by financing activities | 285,745 | 540,080 | 196,259 | |||||||||
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Foreign exchange effect on cash and cash equivalents | (2,064 | ) | (15,270 | ) | (9,288 | ) | ||||||
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Net increase (decrease) in cash and cash equivalents | 29,173 | (102,133 | ) | (91,467 | ) | |||||||
Cash and cash equivalents, beginning of period | 299,173 | 401,306 | 492,773 | |||||||||
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Cash and cash equivalents, end of period | $ | 328,346 | $ | 299,173 | $ | 401,306 | ||||||
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The accompanying notes are an integral part of these consolidated financial statements.
F-9
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Description of Business and Basis of Presentation
Alere Inc. enables individuals to take greater control of their health at home, under the supervision of their healthcare providers, by combining near-patient diagnostics, health monitoring capabilities, and information technology solutions. A leading global provider of point-of-care diagnostics and services, we have developed a strong commercial presence in cardiology, infectious disease, toxicology, and diabetes.
Our business is organized into three operating segments: (i) professional diagnostics, (ii) health information solutions (formerly health management) and (iii) consumer diagnostics. The professional diagnostics segment includes an array of innovative rapid diagnostic test products and other in vitro diagnostic tests marketed to medical professionals and laboratories for detection of diseases and conditions within our areas of focus identified above. The health information solutions segment provides comprehensive, integrated programs and services focused on wellness, disease and condition management, productivity enhancement and informatics, all designed to reduce health-related costs and enhance the health and quality of life of the individuals we serve. The consumer diagnostics segment consists primarily of manufacturing operations related to our role as the exclusive manufacturer of products for SPD Swiss Precision Diagnostics, or SPD, our 50/50 joint venture with The Procter & Gamble Company, or P&G. SPD has significant operations in the worldwide over-the-counter pregnancy and fertility/ovulation test market.
Acquisitions have been an important part of our growth strategy. When we acquire businesses, we seek to complement existing products and services, enhance or expand our product lines and/or expand our customer base. We determine what we are willing to pay for each acquisition partially based upon our expectation that we can cost effectively integrate the products and services of the acquired companies into our existing infrastructure. In addition, we utilize existing infrastructure of the acquired companies to cost effectively introduce our products to new geographic areas. All of these factors contributed to the acquisition prices of acquired businesses that were in excess of the fair value of net assets acquired, resulting in goodwill (Note 4).
The consolidated financial statements include the accounts of Alere Inc. and its subsidiaries. Intercompany transactions and balances are eliminated and net earnings are reduced by the portion of the net earnings of subsidiaries applicable to non-controlling interests. Equity investments in which we exercise significant influence but do not control and are not the primary beneficiary are accounted for using the equity method. Investments in which we are not able to exercise significant influence over the investee and which do not have readily determinable fair values are accounted for under the cost method.
Certain amounts for prior periods have been reclassified to conform to the current period classification.
(2) Summary of Significant Accounting Policies
(a) Use of Estimates
To prepare our financial statements in conformity with accounting principles generally accepted in the United States of America, our management must make estimates, judgments and assumptions that may affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ significantly from such estimates under different assumptions or conditions.
F-10
Table of Contents
ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(2) Summary of Significant Accounting Policies (Continued)
(b) Foreign Currencies
In general, the functional currencies of our foreign subsidiaries are the local currencies. For the purpose of consolidating the financial statements of our foreign subsidiaries, all assets and liabilities of the foreign subsidiaries are translated into U.S. dollars using the exchange rate at each balance sheet date, while the stockholders’ equity accounts are translated at historical exchange rates. Translation gains and losses that result from the conversion of the balance sheets of the foreign subsidiaries into U.S. dollars are recorded to cumulative translation adjustment, which is a component of accumulated other comprehensive income (loss) (Note 15) within stockholders’ equity. The revenue and expenses of our foreign subsidiaries are translated using the average of the rates of exchange in effect during each fiscal month.
Net realized and unrealized foreign currency exchange transaction losses of $7.9 million and $22.9 million during 2012 and 2011, respectively, and gains of $9.8 million during 2010 are included as a component of other income (expense), net in the accompanying consolidated statements of operations.
(c) Cash and Cash Equivalents
We consider all highly-liquid investments purchased with original maturities of three months or less at the date of acquisition to be cash equivalents. Cash equivalents consisted of money market funds at December 31, 2012 and 2011.
(d) Restricted Cash
We had restricted cash of $3.1 million and $9.0 million as of December 31, 2012 and 2011, respectively. Of the $9.0 million as of December 31, 2011, approximately $5.3 million was for the purchase of the remaining outstanding shares of Axis-Shield plc, or Axis-Shield, which were acquired prior to December 31, 2011, but settled in the first quarter of 2012.
(e) Marketable Securities
Securities classified as available-for-sale or trading are carried at fair value, as determined by quoted market prices at the balance sheet date. Realized gains and losses on securities are included in other income (expense), net, on a specific identification basis. Unrealized holding gains and losses (except for other than temporary impairments) on securities classified as available-for-sale, are reported in accumulated other comprehensive income, net of related tax effects. Marketable securities that are held indefinitely are classified in our accompanying consolidated balance sheets as long-term marketable securities.
(f) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market and are made up of raw material, work-in-process and finished goods. The cost elements of work-in-process and finished goods inventory consist of raw material, direct labor and manufacturing overhead. Where finished goods inventory is purchased from third-party manufacturers, the costs of finished goods inventory recorded in the financial statements represent the costs to acquire such inventory.
F-11
Table of Contents
ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(2) Summary of Significant Accounting Policies (Continued)
(g) Property, Plant and Equipment
We record property, plant and equipment at historical cost or, in the case of a business combination, at fair value on the date of the business combination. Depreciation is computed using the straight-line method based on the following estimated useful lives of the related assets: machinery, laboratory equipment and tooling, 1-15 years; buildings, 7-61 years; leasehold improvements, lesser of the remaining term of the lease or estimated useful life of the asset; computer software and equipment, 1-7 years and furniture and fixtures, 2-16 years. Land is not depreciated. Depreciation expense related to property, plant and equipment amounted to $109.7 million, $83.7 million and $67.7 million in 2012, 2011 and 2010, respectively. Fully-depreciated property, plant and equipment that are still in use remain on the books until disposal or retirement. When property, plant and equipment are retired or disposed of, the cost and respective accumulated depreciation are removed from the books. Any gain or loss on disposal is recorded in the income statement. Expenditures for repairs and maintenance are expensed as incurred.
(h) Goodwill and Other Intangible Assets with Indefinite Lives
Goodwill relates to amounts that arose in connection with our various business combinations and represents the difference between the purchase price and the fair value of the identifiable tangible and intangible net assets when accounted for using the acquisition method of accounting. Goodwill is not amortized, but is subject to periodic review for impairment.
We test goodwill and other intangible assets with indefinite lives at the reporting unit level for impairment on an annual basis, and between annual tests, if events and circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying value. Events that would indicate impairment and trigger an interim impairment assessment include, but are not limited to, current economic and market conditions, including a decline in market capitalization, a significant adverse change in legal factors, business climate or operational performance of the business and an adverse action or assessment by a regulator.
In performing the impairment test, we utilize the two-step approach. The first step, or Step 1, requires a comparison of the carrying value of each reporting unit to its estimated fair value. To estimate the fair value of our reporting units for Step 1, we use a combination of the income approach and the market approach. The income approach is based on a discounted cash flow analysis, or DCF, and calculates the fair value by estimating the after-tax cash flows attributable to a reporting unit and then discounting the after-tax cash flows to a present value, using a risk-adjusted discount rate. Assumptions used in the DCF require the exercise of significant judgment, including judgment about appropriate discount rates and terminal values, growth rates and the amount and timing of expected future cash flows. The forecasted cash flows are based on our most recent budget and for years beyond the budget, our estimates are based on assumed growth rates. We believe our assumptions are consistent with the plans and estimates used to manage the underlying businesses. The discount rates, which are intended to reflect the risks inherent in future cash flow projections, used in the DCF are based on estimates of the weighted-average cost of capital, or WACC, of market participants relative to each respective reporting unit. The market approach considers comparable market data based on multiples of revenue or earnings before interest, taxes, depreciation and amortization, or EBITDA.
If the carrying value of a reporting unit exceeds its estimated fair value, we are required to perform the second step, or Step 2, of the goodwill impairment test to measure the amount of impairment loss,
F-12
Table of Contents
ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(2) Summary of Significant Accounting Policies (Continued)
if any. The second step of the goodwill impairment test compares the implied fair value of a reporting unit’s goodwill to its carrying value. The implied fair value of goodwill is calculated as the difference between the fair value of the reporting unit and the estimated fair value of its assets and liabilities. To the extent this amount is below the carrying value of goodwill, an impairment charge is recorded.
The estimate of fair value requires significant judgment. We based our fair value estimates on assumptions that we believe to be reasonable but that are unpredictable and inherently uncertain, including estimates of future growth rates and operating margins and assumptions about the overall economic climate and the competitive environment for our business units. There can be no assurance that our estimates and assumptions made for purposes of our goodwill and identifiable intangible asset testing as of the time of testing will prove to be accurate predictions of the future. If our assumptions regarding business plans, competitive environment or anticipated growth rates are not correct, we may be required to record goodwill and/or intangible asset impairment charges in future periods, whether in connection with our next annual impairment testing or earlier, if an indicator of an impairment is present before our next annual evaluation.
Impairment charges related to goodwill have no impact on our cash balances or on compliance with financial covenants under our Amended and Restated Credit Agreement.
2012 Annual Goodwill Impairment Test
We conducted our 2012 annual impairment test for our reporting units during the fourth quarter of 2012. Key assumptions (which vary by reporting unit) used in determining fair value under the discounted cash flow approach included discount rates ranging from 11.0% to 15.0%, projected compound average revenue growth rates of 3.0% to 8.1% and terminal value growth rates of 3.0% to 4.0%. In determining the appropriate discount rate, we considered the WACC for each reporting unit, which among other factors considers the cost of common equity capital and the marginal cost of debt of market participants. Key assumptions (which again vary by reporting unit) used in determining fair value under the market approach were based on observed market multiples of enterprise value to revenue and EBITDA for both comparable publicly-traded companies and recent merger and acquisition transactions involving similar companies to estimate appropriate controlling basis multiples to apply to each of the reporting units. Based on the multiples implied by this market data, we selected multiples of revenue of 0.9 to 2.4 times and multiples of EBITDA of 6.1 to 8.9 times. In assessing the reasonableness of our estimated fair values of the reporting units, management compared the results of the valuation analyses against our then-current market capitalization to imply a control premium. Based on this analysis, the implied control premium was within the range of comparable industry transactions.
The Step 1 impairment analysis indicated the estimated fair value of the professional diagnostics, health information solutions and consumer diagnostics reporting units exceeded the carrying value of their reporting unit’s net assets by 7.9%, 9.4% and 27.2%, respectively.
2011 Annual Goodwill Impairment Test
We conducted our 2011 annual impairment test for our reporting units during the fourth quarter of 2011. Key assumptions (which vary by reporting unit) used in determining fair value under the discounted cash flow approach included discount rates ranging from 11.0% to 14.5%, projected compound average revenue growth rates of 4.9% to 10.0% and terminal value growth rates of 4.0%. In determining the appropriate discount rate, we considered the WACC for each reporting unit, which, among other factors,
F-13
Table of Contents
ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(2) Summary of Significant Accounting Policies (Continued)
considers the cost of common equity capital and the marginal cost of debt of market participants. Key assumptions (which again vary by reporting unit) used in determining fair value under the market approach were based on observed market multiples of enterprise value to revenue and EBITDA for both comparable publicly-traded companies and recent merger and acquisition transactions involving similar companies to estimate appropriate controlling basis multiples to apply to each of the reporting units. Based on the multiples implied by this market data, we selected multiples of revenue of 0.8 to 2.6 times and multiples of EBITDA of 5.6 to 9.3 times. In assessing the reasonableness of our estimated fair values of the reporting units, management compared the results of the valuation analyses against our then-current market capitalization to imply a control premium. Based on this analysis, the implied control premium was within the range of comparable industry transactions.
The Step 1 impairment analysis indicated that the carrying value of the net assets of our health information solutions reporting unit exceeded the estimated fair value of the reporting unit. As a result, we were required to perform Step 2 of the goodwill impairment test to determine the amount, if any, of goodwill impairment charges for the health information solutions reporting unit. We completed Step 2, consistent with the procedures described above, and determined that a goodwill impairment charge in the amount of approximately $383.6 million was required. The resulting goodwill impairment charge is reflected in operating income (loss) in our accompanying consolidated statements of operations.
This impairment was primarily driven by reduced future cash flow expectations from the reporting unit principally as a result of an increasingly competitive business environment for services provided by the reporting unit, including the insourcing of certain services by key customers and a reduction in spending by other customers as a result in part of the continuing difficult economic climate. Also contributing to the impairment charge was the lower valuations ascribed to similar comparable businesses in the public markets.
2010 Annual Goodwill Impairment Test
We conducted our 2010 annual impairment test for our reporting units during the fourth quarter of 2010. Key assumptions (which vary by reporting unit) used in determining fair value under the discounted cash flow approach included discount rates ranging from 12.5% to 13.0%, projected compound average revenue growth rates of 6.0% to 10.0% and terminal value growth rates of 4.0%. In determining the appropriate discount rate, we considered the WACC for each reporting unit, which, among other factors, considers the cost of common equity capital and the marginal cost of debt of market participants. Key assumptions (which again vary by reporting unit) used in determining fair value under the market approach were based on observed market multiples of enterprise value to revenue and EBITDA for both comparable publicly-traded companies and recent merger and acquisition transactions involving similar companies to estimate appropriate controlling basis multiples to apply to each of the reporting units. Based on the multiples implied by this market data, we selected multiples of revenue of 1.0 to 2.8 times and multiples of EBITDA of 7.5 to 10.0 times. In assessing the reasonableness of our estimated fair values of the reporting units, management compared the results of the valuation analyses against our then-current market capitalization to imply a control premium. Based on this analysis, the implied control premium was within the range of comparable industry transactions.
The Step 1 impairment analysis indicated that the carrying value of the net assets of our health information solutions reporting unit exceeded the estimated fair value of the reporting unit. As a result, we were required to perform Step 2 of the goodwill impairment test to determine the amount, if any, of goodwill impairment charges for the health information solutions reporting unit. We completed Step 2, consistent with the procedures described above, and determined that a goodwill impairment charge in
F-14
Table of Contents
ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(2) Summary of Significant Accounting Policies (Continued)
the amount of approximately $1.0 billion was required. The resulting goodwill impairment charge is reflected in operating income (loss) in our accompanying consolidated statements of operations.
This impairment was primarily driven by reduced future cash flow expectations from the reporting unit principally as a result of an increasingly competitive business environment for services provided by the reporting unit, including the insourcing of certain services by key customers and a reduction in spending by other customers as a result in part of the continuing difficult economic climate. Also contributing to the impairment charge was the lower valuations ascribed to similar comparable businesses in the public markets.
(i) Impairment of Other Long-Lived Tangible and Intangible Assets
Our intangible assets consist primarily of core technology, in-process research and development, patents, trademarks, trade names, customer relationships, distribution rights and non-competition agreements. The majority of our intangible assets were recorded in connection with our various business combinations. Our intangible assets are recorded at fair value at the time of their acquisition. We amortize intangible assets over their estimated useful lives.
The estimated useful lives of the individual categories of intangible assets were based on the nature of the applicable intangible asset and the expected future cash flows to be derived from the intangible asset. Amortization of intangible assets with finite lives is recognized over the shorter of the respective lives of the agreement or the period of time the intangible assets are expected to contribute to future cash flows. We amortize our finite-lived intangible assets based on patterns on which the respective economic benefits are expected to be realized.
We evaluate long-lived tangible and intangible assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If indicators of impairment are present with respect to long-lived tangible and intangible assets used in operations and undiscounted future cash flows are not expected to be sufficient to recover the assets’ carrying amount, additional analysis is performed as appropriate and the carrying value of the long-lived assets is reduced to the estimated fair value, if this is lower, and an impairment loss is charged to expense in the period the impairment is identified.
We conduct our annual goodwill impairment test for our reporting units during the fourth quarter of each year. The impairment tests conducted during 2011 and 2010 indicated there was an impairment of goodwill associated with our health information solutions reporting unit, and thus, a potential impairment of our long-lived tangible and intangible assets associated with the same reporting unit. We conducted an analysis,utilizing an undiscounted cash flow model. The analyses conducted during 2011 and 2010 indicated there was no impairment of the long-lived tangible or intangible assets associated with our health information solutions reporting unit.
(j) Acquired In-Process Research and Development (IPR&D)
Acquired IPR&D represents the fair value assigned to research and development assets that we acquire as part of business combinations, and which have not been completed at the date of acquisition. The acquired IPR&D is capitalized as an intangible asset and tested for impairment at least annually until commercialization, after which time the IPR&D is amortized over its estimated useful life.
(k) Business Acquisitions
Our business acquisitions have historically been made at prices above the fair value of the assets acquired and liabilities assumed, resulting in goodwill, based on our expectations of synergies and
F-15
Table of Contents
ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(2) Summary | of Significant Accounting Policies (Continued) |
other benefits of combining the businesses. These synergies and benefits include elimination of redundant facilities, functions and staffing; use of our existing commercial infrastructure to expand sales of the products of the acquired businesses; and use of the commercial infrastructure of the acquired businesses to expand product sales in a cost-efficient manner.
Significant judgment is required in estimating the fair value of intangible assets and in assigning their respective useful lives. The fair value estimates are based on available historical information and on future expectations and assumptions deemed reasonable by management, but are inherently uncertain.
We generally employ the income method to estimate the fair value of intangible assets, which is based on forecasts of the expected future cash flows attributable to the respective assets. Significant estimates and assumptions inherent in the valuations reflect a consideration of other marketplace participants, and include the amount and timing of future cash flows (including expected growth rates and profitability), the underlying product life cycles, economic barriers to entry, a brand’s relative market position and the discount rate applied to the cash flows. Unanticipated market or macroeconomic events and circumstances may occur, which could affect the accuracy or validity of the estimates and assumptions.
Net assets acquired are recorded at their fair value and are subject to adjustment upon finalization of the fair value analysis. We are not aware of any information that indicates the final fair value analysis will differ materially from the preliminary estimates.
During 2012, 2011, and 2010, we expensed acquisition-related costs of $9.7 million $11.5 million and $8.2 million, respectively, in general and administrative expense.
(l) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts that are more likely than not to be realized in the future (Note 16).
We account for uncertain tax positions using a “more-likely-than-not” threshold for recognizing and resolving uncertain tax positions. We evaluate uncertain tax positions on a quarterly basis and consider various factors, including, but not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity and changes in facts or circumstances related to a tax position.
(m) Revenue Recognition
We primarily recognize revenue when the following four basic criteria have been met: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services rendered, (3) the fee is fixed or determinable and (4) collection is reasonably assured.
The majority of our revenue is derived from product sales. We recognize revenue upon transfer of the title of the products to third-party customers, less a reserve for estimated product returns and
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(2) Summary | of Significant Accounting Policies (Continued) |
allowances. Determination of the reserve for estimated product returns and allowances is based on our management’s analyses and judgments regarding certain conditions. Should future changes in conditions prove management’s conclusions and judgments on previous analyses to be incorrect, revenue recognized for any reporting period could be adversely affected.
For products that include installation, and if the installation meets the criteria to be considered a separate element, product revenue is recognized upon delivery, and installation revenue is recognized when the installation is complete. For sales that include customer-specified acceptance criteria, revenue is recognized after the acceptance criteria have been met. Certain of our products require specialized installation. Revenue for these products is deferred until installation is completed. Revenue from services is deferred and recognized over the contractual period, or as services are rendered and accepted by the customer. When arrangements include multiple elements, we use objective evidence of fair value to allocate revenue to the elements, and recognize revenue when the criteria for revenue recognition have been met for each element, in accordance with authoritative guidance on multiple-element arrangements.
Additionally, we generate services revenue in connection with contracts with health plans (both commercial and governmental) and self-insured employers, whereby we provide clinical expertise through fee-based arrangements. Revenue for fee-based arrangements is recognized over the period in which the services are provided. Some contracts provide that a portion of our fees are at risk if our customers do not achieve certain financial cost savings or we do not achieve certain other clinical and operational metrics, over a period of time, typically one year. Revenue subject to refund is not recognized if (i) sufficient information is not available to calculate performance measurements or (ii) interim performance measurements indicate that we are not meeting performance targets. If either of these two conditions exists, we record the amounts as other current liabilities in the consolidated balance sheet, deferring recognition of the revenue until we establish that we have met the performance criteria. If we do not meet the performance targets at the end of the contractual period, we are obligated under the contract to refund some or all of the at-risk fees.
We also receive license and royalty revenue from agreements with third-party licensees. Revenue from license and royalty agreements is recognized on a straight-line basis over the obligation period of the related license agreements, or at the time when we have no further obligations. License and royalty fees that the licensees calculate based on their sales, which we have the right to audit under most of our agreements, are generally recognized upon receipt of the license or royalty payments unless we are able to reasonably estimate the fees as they are earned. License and royalty fees that are determinable prior to the receipt thereof are recognized in the period they are earned.
(n) Employee Stock-Based Compensation Arrangements
We account for share-based payments in accordance with Accounting Standards Codification, or ASC 718,Compensation — Stock Compensation. Compensation expense associated with stock options includes amortization based on the grant-date fair value estimated in accordance with the provisions of ASC 718. In addition, we record expense over the offering period in connection with shares issued under our employee stock purchase plan. Compensation expense for stock-based compensation awards includes an estimate for forfeitures and is recognized over the vesting period of the options using the straight-line method. It is our policy to recognize, through additional paid in capital, the excess or windfall tax benefits on stock option deductions, as those deductions are recognized on tax returns.
Our stock option plans provide for grants of options to employees to purchase common stock at or above the fair market value of such shares on the grant date of the award. The options generally vest
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(2) Summary of Significant Accounting Policies (Continued)
over a four-year period, beginning on the date of grant, with a graded vesting schedule of 25% at the end of each of the four years. The fair value of each option grant is estimated on the date of grant primarily using a Black-Scholes option-pricing method. We use historical data to estimate the expected price volatility and the expected forfeiture rate. The contractual term of our stock option awards is ten years. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant with a remaining term equal to the expected term of the option. We have not made any dividend payments to common shareholders nor do we have plans to pay dividends in the foreseeable future.
(o) Net Loss per Common Share
Net loss per common share is based upon the weighted-average number of outstanding common shares and the dilutive effect of common share equivalents, such as options and warrants to purchase common stock, convertible preferred stock and convertible notes, if applicable, that are outstanding each year (Note 12).
(p) Other Operating Expenses
We expense advertising costs as incurred. In 2012, 2011 and 2010, advertising costs amounted to $22.6 million, $9.9 million and $14.4 million, respectively, and are included in sales and marketing expenses in the accompanying consolidated statements of operations.
Shipping and handling costs are included in cost of net revenue in the accompanying consolidated statements of operations. When we charge our customers for shipping and handling costs, these costs are recorded along with product revenues.
(q) Concentration of Credit Risk, Off-Balance Sheet Risks and Other Risks and Uncertainties
Financial instruments that potentially subject us to concentration of credit risk primarily consist of cash and cash equivalents and accounts receivable. We invest our excess cash primarily in high quality securities and limit the amount of our credit exposure to any one financial institution. We do not require collateral or other securities to support customer receivables; however, we perform on-going credit evaluations of our customers and maintain allowances for potential credit losses.
At December 31, 2012 and 2011, no individual customer’s accounts receivable balance was in excess of 10% of our aggregate accounts receivable. During 2012, 2011 and 2010, no one customer represented greater than 10% of our net revenue.
We rely on a number of third parties to manufacture certain of our products. If any of our third-party manufacturers cannot, or will not, manufacture our products in the required volumes, on a cost-effective basis, in a timely manner, or at all, we will have to secure additional manufacturing capacity. Any interruption or delay in manufacturing could have a material adverse effect on our business and operating results.
(r) Financial Instruments and Fair Value of Financial Instruments
Our primary financial instruments at December 31, 2012 and 2011 consisted of cash equivalents, restricted cash, marketable securities, accounts receivable, accounts payable and debt. We apply fair value measurement accounting to value our financial assets and liabilities. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(2) Summary of Significant Accounting Policies (Continued)
advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value hierarchy requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value.
Described below are the three levels of inputs that may be used to measure fair value:
Level 1 Quoted prices in active markets for identical assets or liabilities.
Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
(s) Software for Internal Use and for Resale
We may capitalize certain costs associated with the development of internal-use software, including direct materials and services. Capitalized software is amortized on a straight-line basis over its estimated useful life and is included in computer software and equipment within property, plant and equipment.
We also develop software for resale or lease to external parties and expense the costs of developing software for resale or lease incurred before establishment of technological feasibility of the underlying software. The costs incurred from establishment of technological feasibility until general release of the software are capitalized, and the capitalized software is amortized over its estimated useful life. Capitalized software for resale or lease is included in computer software and equipment within property, plant and equipment.
(t) Research and Development
Our research and development programs focus on the development of cardiology, infectious disease, toxicology, diabetes, oncology and women’s health products together with health information technologies that will facilitate connectivity and information and data management solutions. Research and development costs are expensed as incurred. Payments received from external parties to fund our research and development activities reduce the recorded research and development expenses.
(u) Leases
We lease certain facilities and equipment from external parties under operating leases. Rent expense related to operating leases is recorded in the income statement as incurred. We also lease machinery, laboratory equipment, tooling and other equipment under capital leases. In determining whether a lease is a capital or an operating lease, we estimate the expected term of the lease, which includes certain renewable options as required by lease accounting guidance. Rent deferrals, landlord incentives and rent escalations are included in calculation of minimum lease payments when performing the capital lease tests and when calculating the rent expense for operating leases.
Leased property, plant and equipment that meet the capital lease criteria are capitalized at the lower of the present value of the minimum lease payments or the fair value of the underlying asset at the inception date of the lease. Assets under capital leases are depreciated on a straight-line basis over the lease term.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(2) Summary of Significant Accounting Policies (Continued)
Leasehold improvements are capitalized and amortized over the shorter of their estimated useful lives or the remainder of the expected term of the lease.
(v) Recent Accounting Pronouncements
Recently Issued Standards
In July 2012, the FASB issued Accounting Standards Update, or ASU, No. 2012-02,Intangibles — Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment, or ASU 2012-02. ASU 2012-02 allows an entity the option to first assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount. An entity also has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the qualitative assessment in any subsequent period. ASU 2012-02 is effective for annual and interim impairment tests for fiscal years beginning after September 15, 2012. The adoption of this standard is not expected to have a material impact on our financial position, results of operations, comprehensive income or cash flows.
Recently Adopted Standards
Effective January 1, 2012, we adopted ASU No. 2011-08,Intangibles — Goodwill and Other (Topic 350): Testing for Goodwill Impairment, or ASU 2011-08. ASU 2011-08 allows an entity the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step impairment test. If an entity believes, as a result of its qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative two-step impairment test is required; otherwise, no further testing is required. This update does not change the current guidance for testing other indefinite-lived intangible assets for impairment. The adoption of this standard did not have an impact on our financial position, results of operations, comprehensive income or cash flows. Based upon a qualitative assessment, we performed Step 1 of the two-step impairment test on all of our reporting units in 2012.
Effective January 1, 2012, we adopted ASU No. 2011-05,Comprehensive Income (Topic 220): Presentation of Comprehensive Income, or ASU 2011-05. ASU 2011-05 (1) eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity; (2) requires the consecutive presentation of the statement of net income and other comprehensive income; and (3) requires an entity to present reclassification adjustments on the face of the financial statements from other comprehensive income to net income. This update does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments do not affect how the earnings per share amounts are calculated or presented. Effective January 1, 2012, the FASB issued ASU No. 2011-12,Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05, or ASU 2011-12. As these accounting standards only require enhanced disclosure, the adoption of these standards did not impact our financial position, results of operations, comprehensive income or cash flows.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(2) Summary of Significant Accounting Policies (Continued)
Effective January 1, 2012, we adopted ASU No. 2011-04,Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, or ASU 2011-04. ASU 2011-04 provides common requirements for measuring fair value and disclosing information about fair value measurements in accordance with U.S. GAAP.
(3) Other Balance Sheet Information
(a) Components of selected captions in the consolidated balance sheets consist of (in thousands):
December 31, | ||||||||
2012 | 2011 | |||||||
Inventories, net: | ||||||||
Raw materials | $ | 99,498 | $ | 92,844 | ||||
Work-in-process | 89,895 | 72,939 | ||||||
Finished goods | 147,728 | 154,486 | ||||||
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$ | 337,121 | $ | 320,269 | |||||
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Property, plant and equipment, net: | ||||||||
Machinery, laboratory equipment and tooling | $ | 416,311 | $ | 340,750 | ||||
Land and buildings | 176,214 | 170,152 | ||||||
Leasehold improvements | 45,654 | 38,767 | ||||||
Computer software and equipment | 217,940 | 174,086 | ||||||
Furniture and fixtures | 33,022 | 28,117 | ||||||
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889,141 | 751,872 | |||||||
Less: Accumulated depreciation and amortization | (354,672 | ) | (260,667 | ) | ||||
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$ | 534,469 | $ | 491,205 | |||||
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Accrued expenses and other current liabilities: | ||||||||
Compensation and compensation-related | $ | 93,467 | $ | 77,656 | ||||
Professional fees | 12,152 | 9,171 | ||||||
Interest payable | 18,074 | 27,137 | ||||||
Royalty obligations | 26,171 | 29,085 | ||||||
Deferred revenue | 38,188 | 33,407 | ||||||
Income taxes payable | 29,733 | 50,134 | ||||||
Other taxes payable | 23,038 | 29,245 | ||||||
Acquisition-related obligations | 79,286 | 68,009 | ||||||
Other | 91,810 | 71,729 | ||||||
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$ | 411,919 | $ | 395,573 | |||||
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(b) Note receivable from FGST Investments, Inc.
In December 2012, we entered into an arrangement whereby we issued a $40.0 million short-term note to an unrelated party, FGST Investments, Inc., or FGST, for the primary purpose of providing funding in connection with their acquisition of the Polymedica Corporation (“Liberty”) line of business, a medical supply business, from a subsidiary of Express Scripts Holding Company. The note bears interest at a rate of 3.25% per annum and is collateralized by substantially all of the assets of FGST and its parent entity, ATLS. The $40.0 million short-term note is classified within prepaid expenses and other current assets on our Consolidated Balance Sheet as of December 31, 2012. In connection with
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(3) Other | Balance Sheet Information (Continued) |
the note, we obtained a call option on certain of the assets acquired by FGST, at a strike price of $40.0 million. In lieu of repayment of the note, we may exercise the option by tendering the note to obtain those assets. If we do not exercise the option, $10.0 million becomes repayable five days after the expiration of the option and $30.0 million, plus accrued and unpaid interest, becomes repayable on the 60th day following the expiration of the option.
Upon evaluation of the significant terms of the note arrangement and the call option, we have concluded that the note and option represent a variable interest in FGST and, therefore, FGST is a variable interest entity. Further, we assessed whether we are the primary beneficiary in relation to FGST and concluded that we do not have power over the most significant activities of FGST, primarily operating decision making and that our obligation to absorb losses or receive benefits from FGST is limited to our note receivable from them. Given such, we have concluded that we are not the primary beneficiary and, therefore, we will not include the financial results of FGST in our consolidated financial statements. See also Note 25.
(4) Business Combinations
(a) Acquisitions in 2012
(i) eScreen
On April 2, 2012, we acquired eScreen, Inc., or eScreen, headquartered in Overland Park, Kansas, a technology-enabled provider of employment drug screening solutions for hiring and maintaining healthier and more efficient workforces. The preliminary aggregate purchase price was approximately $295.0 million, which consisted of $271.4 million in cash and a contingent consideration obligation with an aggregate acquisition date fair value of $23.6 million. Included in our consolidated statements of operations for the year ended December 31, 2012 is revenue totaling approximately $116.7 million related to eScreen. The operating results of eScreen are included in our professional diagnostics reporting unit and business segment. The amount allocated to goodwill from this acquisition is not deductible for tax purposes.
(ii) Other acquisitions in 2012
During 2012, we acquired the following businesses for a preliminary aggregate purchase price of $199.4 million, which included cash payments totaling $147.4 million and contingent consideration obligations with aggregate acquisition date fair values of $52.0 million.
• | Reatrol Comercializacao De Produtos De Saude, LDA, subsequently renamed Alere Lda, located in Vila Nova de Gaia, Portugal, a distributor of products for drugs of abuse testing (Acquired January 2012) |
• | Kullgren Holding AB, or Kullgren, located in Gensta, Sweden, a company that manufactures and distributes high-quality intimacy and pharmaceutical products (Acquired February 2012) |
• | Wellogic ME FZ-LLC, or Wellogic UAE, located in Dubai, United Arab Emirates, a company that provides development services to Alere Wellogic, LLC, which acquired the assets of Method Factory, Inc. (d/b/a Wellogic), or Wellogic, in December 2011 (Acquired February 2012) |
• | certain assets, primarily including customer and patient lists, of AmMed Direct LLC, or AmMed, located near Nashville, Tennessee, a privately-owned mail-order provider of home-diabetes testing products and supplies (Acquired March 2012) |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(4) Business Combinations (Continued)
• | MedApps Holding Company, Inc., or MedApps, headquartered in Scottsdale, Arizona, a developer of innovative remote health monitoring solutions that deliver efficient cost-effective connectivity between patient, care provider and electronic medical records (Acquired July 2012) |
• | Amedica Biotech, Inc., or Amedica, located in Hayward, California, a company focused on the development and manufacture of in vitro diagnostic tests (Acquired July 2012) |
• | DiagnosisOne, Inc., or DiagnosisOne, located in Lowell, Massachusetts, a software company that provides clinical analytics technology and data-driven content to hospitals, physician groups, insurers and governments (Acquired July 2012) |
• | Seelen Care Laege-og & Hospitalsartikler ApS, or Seelen, located in Holstebro, Denmark, a distributor of consumables, instruments and equipment to doctors, specialists and physiotherapists (Acquired August 2012) |
• | certain assets of Diagnostik Nord, or Diagnostik, located in Schwerin, Germany, a company focused on the sale of drug screening and in vitro diagnostic medical devices and a provider of diagnostic solutions (Acquired September 2012) |
• | Healthcare Connections Limited, or HCC, located in Buckinghamshire, United Kingdom, an occupational health provider specializing in employment medical programs, preventative health schemes and drug and alcohol sample collection services (Acquired November 2012) |
• | the diagnostic division of Medial spol. s.r.o., subsequently renamed Alere s.r.o., located in Prague, Czech Republic, a distributor of laboratory diagnostic devices, devices operating in the point-of-care testing regime, diagnostic kits and tests for biochemistry, hematology, and microbiology (Acquired November 2012) |
• | certain assets of Quantum Diagnostics, or Quantum Australia, located in Australia, an on-line medical supply company that provides a range of affordable drug and alcohol tests for personal, business and professional medical use. (Acquired November 2012) |
• | certain assets of NationsHealth, Inc., or NationsHealth, headquartered in Sunrise, Florida, a privately-owned mail-order provider of diabetes home-testing products and supplies, and a share acquisition of NationsHealth’s subsidiary in the Philippines, or NationsHealth Philippines (Acquired December 2012) |
• | Branan Medical Corporation, or Branan, headquartered in Irvine, California, a manufacturer of drugs of abuse testing products (Acquired December 2012) |
The operating results of Alere Lda, AmMed, MedApps, Amedica, Seelen, Diagnostik, HCC, Alere s.r.o., Quantum Australia, NationsHealth and Branan are included in our professional diagnostics reporting unit and business segment. The operating results of Wellogic UAE and DiagnosisOne are included in our health information solutions reporting unit and business segment. The operating results of Kullgren are included in our consumer diagnostics reporting unit and business segment.
Our consolidated statements of operations for the year ended December 31, 2012 included revenue totaling approximately $44.6 million related to these businesses. Goodwill has been recognized in all of these acquisitions and amounted to approximately $102.9 million. Goodwill related to the acquisitions of AmMed, Diagnostik and the US-based assets of NationsHealth, which totaled $8.8 million, is deductible for tax purposes. The goodwill related to the remaining 2012 acquisitions is not deductible for tax purposes.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(4) Business Combinations (Continued)
A summary of the preliminary fair values of the net assets acquired for the acquisitions consummated in 2012 is as follows (in thousands):
eScreen | Other | Total | ||||||||||
Current assets(1) | $ | 32,530 | $ | 13,304 | $ | 45,834 | ||||||
Property, plant and equipment | 5,806 | 3,184 | 8,990 | |||||||||
Goodwill | 154,923 | 102,919 | 257,842 | |||||||||
Intangible assets | 204,000 | 121,223 | 325,223 | |||||||||
Other non-current assets | 481 | 221 | 702 | |||||||||
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Total assets acquired | 397,740 | 240,851 | 638,591 | |||||||||
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Current liabilities | 22,805 | 4,885 | 27,690 | |||||||||
Non-current liabilities | 79,945 | 36,520 | 116,465 | |||||||||
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Total liabilities assumed | 102,750 | 41,405 | 144,155 | |||||||||
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Net assets acquired | 294,990 | 199,446 | 494,436 | |||||||||
Less: | ||||||||||||
Contingent consideration | 23,600 | 52,020 | 75,620 | |||||||||
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Cash paid | $ | 271,390 | $ | 147,426 | $ | 418,816 | ||||||
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(1) | Includes approximately $4.0 million of acquired cash. |
The following are the intangible assets acquired and their respective fair values and weighted-average useful lives (dollars in thousands):
eScreen | Other | Total | Weighted- average Useful Life | |||||||||||||
Core technology and patents | $ | 93,200 | $ | 54,903 | $ | 148,103 | 18.7 years | |||||||||
Trademarks and trade names | 17,300 | 2,090 | 19,390 | 18.3 years | ||||||||||||
Customer relationships | 79,600 | 56,885 | 136,485 | 18.1 years | ||||||||||||
Non-competition agreements | — | 1,118 | 1,118 | 5.1 years | ||||||||||||
Other | 13,900 | 1,327 | 15,227 | 9.2 years | ||||||||||||
In-process research and development | — | 4,900 | 4,900 | N/A | ||||||||||||
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Total intangible assets | $ | 204,000 | $ | 121,223 | $ | 325,223 | ||||||||||
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(b) Acquisitions in 2011
(i) Arriva
On November 23, 2011, we acquired Arriva Medical LLC, or Arriva, located in Coral Springs, Florida, a privately-owned mail-order provider of diabetes home-testing products and supplies. The aggregate purchase price was $79.5 million, which consisted of a cash payment totaling $64.4 million and 806,452 shares of our common stock with an aggregate fair value of $15.2 million. Included in our consolidated statement of operations for the year ended December 31, 2011 is revenue totaling approximately $5.3 million related to this acquired business. The operating results of Arriva are included in our professional diagnostics reporting unit and business segment. The amount allocated to goodwill from this acquisition is deductible for tax purposes.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(4) Business Combinations (Continued)
(ii) Axis-Shield
On November 1, 2011, we acquired Axis-Shield, located in Dundee, Scotland, a U.K. publicly traded company focused on the development and manufacture of in vitro diagnostic tests for use in clinical laboratories and at the point of care. The aggregate purchase price was $388.8 million, which consisted of cash payments totaling $279.6 million and the fair value of previously-held investment totaling $109.2 million. Included in our consolidated statement of operations for the year ended December 31, 2011 is revenue totaling approximately $36.7 million, including $1.8 million of license and royalty revenue, related to this acquired business. The operating results of Axis-Shield are included in our professional diagnostics reporting unit and business segment. We do not expect the amount allocated to goodwill to be deductible for tax purposes.
(iii) Avee
On October 3, 2011, we acquired Avee Laboratories Inc. and related companies, which we refer to collectively as Avee, located in Tampa, Florida, a privately-owned provider of drug testing services in the field of pain management. The aggregate purchase price was $120.5 million, which was paid in cash. Included in our consolidated statement of operations for the year ended December 31, 2011 is revenue totaling approximately $27.2 million related to this acquired business. The operating results of Avee are included in our professional diagnostics reporting unit and business segment. The amount allocated to goodwill from this acquisition is deductible for tax purposes.
(iv) Other acquisitions in 2011
During 2011, we acquired the following businesses for an aggregate purchase price of $198.5 million, which included cash payments totaling $139.3 million, a previously-held investment with a fair value totaling $3.9 million, 25,463 shares of our common stock with an acquisition date fair value of $1.0 million, contingent consideration obligations with an aggregate acquisition date fair value of $48.7 million, deferred purchase price consideration with an acquisition date fair value of $4.2 million and debt forgiveness with a fair value of $1.5 million.
• | 90% interest in BioNote, Inc., or BioNote, headquartered in South Korea, a manufacturer of diagnostic products for the veterinary industry (Acquired January 2011). We previously owned a 10% interest in BioNote. |
• | assets, including domain name, of Pregnancy.org, LLC, or Pregnancy.org, a U.S.-based company providing a website for preconception, pregnancy and newborn care content, tools and sharing (Acquired January 2011) |
• | Home Telehealth Limited, subsequently renamed Alere Connected Health Limited, or Alere Connected Health, located in Cardiff, Wales, a company that focuses on delivering integrated, comprehensive services and programs to health and social care providers and insurers (Acquired February 2011) |
• | Bioeasy Diagnostica Ltda., or Bioeasy, located in Belo Horizonte, Brazil, a company that markets and sells rapid diagnostic tests and systems for laboratory diagnosis, prevention and monitoring of immunological diseases and fertility (Acquired March 2011) |
• | 80.92% interest in Standing Stone, Inc., or Standing Stone, located in Westport, Connecticut, a company that focuses on disease state management by enhancing the quality of care provided to patients who require long-term therapy for chronic disease management (Acquired May 2011) |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(4) Business Combinations (Continued)
• | certain assets, rights, liabilities and properties of Drug Detection Devices, Inc., or 3DL, located in Alpharetta, Georgia, a distributor that promotes, markets, distributes and sells drugs of abuse diagnostic products, including consumables, point-of-care diagnostic kits and related products and services (Acquired July 2011) |
• | Colibri Medical AB, or Colibri, located in Helsingborg, Sweden, a distributor of point-of-care drugs of abuse diagnostic products primarily to the Scandinavian marketplace (Acquired July 2011) |
• | Laboratory Data Systems, Inc., or LDS, located in Tampa, Florida, a provider of healthcare software products, services, consulting and solutions (Acquired August 2011) |
• | certain assets, liabilities and properties of Abatek Medical LLC, or Abatek, located in Dover, New Hampshire, a distributor that promotes, markets, distributes and sells drugs of abuse diagnostic products, including consumables, point-of-care diagnostic kits and related products and services (Acquired September 2011) |
• | Forensics Limited, or ROAR, located in Worcestershire, England, a company that provides forensic quality toxicology services across the United Kingdom (Acquired September 2011) |
• | Mahsan Diagnostika Vertriebsgesellschaft mbH, or Mahsan, located in Reinbek, Germany, a distributor of in vitro diagnostic drugs of abuse products primarily to the German marketplace (Acquired October 2011) |
• | Medical Automation Systems Inc., or MAS, located in Charlottesville, Virginia, a provider of network-based software solutions for point-of-care testing (Acquired October 2011) |
• | certain assets and properties of 1 Medical Distribution, Inc., or 1 Medical, located in Worthington, Ohio, a distributor that promotes, markets, distributes and sells drugs of abuse diagnostic products, including consumables, point-of-care diagnostic kits and related products and services (Acquired November 2011) |
• | Method Factory, Inc. (d/b/a Wellogic), or Wellogic, headquartered in Waltham, Massachusetts, a provider of software solutions designed to connect the healthcare community (Acquired December 2011) |
The operating results of BioNote, Bioeasy, 3DL, Colibri, LDS, Abatek, ROAR, Mahsan, MAS and 1 Medical are included in our professional diagnostics reporting unit and business segment. The operating results of Pregnancy.org, Alere Connected Health, Standing Stone and Wellogic are included in our health information solutions reporting unit and business segment.
Our consolidated statement of operations for the year ended December 31, 2011 included revenue totaling approximately $21.1 million related to these businesses. Goodwill has been recognized in all of the acquisitions, with the exception of 1 Medical, and amounted to approximately $131.3 million. Goodwill related to the acquisitions of Pregnancy.org, 3DL, Abatek, LDS and Wellogic, which totaled $32.8 million, is expected to be deductible for tax purposes. The goodwill related to the remaining 2011 acquisitions is not expected to be deductible for tax purposes.
F-26
Table of Contents
ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(4) Business Combinations (Continued)
A summary of the aggregate purchase price allocation for the acquisitions consummated in 2011 is as follows (in thousands):
Avee | Arriva | Axis-Shield | Other | Total | ||||||||||||||||
Current assets(1) | $ | 10,197 | $ | 4,874 | $ | 92,666 | $ | 23,542 | $ | 131,279 | ||||||||||
Property, plant and equipment | 5,411 | 524 | 50,719 | 11,820 | 68,474 | |||||||||||||||
Goodwill | 30,409 | 58,174 | 136,182 | 131,348 | 356,113 | |||||||||||||||
Intangible assets | 76,400 | 27,400 | 233,370 | 79,454 | 416,624 | |||||||||||||||
Other non-current assets | — | 1,196 | 18,512 | 13,009 | 32,717 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total assets acquired | 122,417 | 92,168 | 531,449 | 259,173 | 1,005,207 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Current liabilities | 1,927 | 12,629 | 44,758 | 27,623 | 86,937 | |||||||||||||||
Non-current liabilities | — | — | 97,842 | 30,512 | 128,354 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total liabilities assumed | 1,927 | 12,629 | 142,600 | 58,135 | 215,291 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less: | ||||||||||||||||||||
Fair value of non-controlling interest | — | — | — | 2,500 | 2,500 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net assets acquired | 120,490 | 79,539 | 388,849 | 198,538 | 787,416 | |||||||||||||||
Less: | ||||||||||||||||||||
Contingent consideration | — | — | — | 48,685 | 48,685 | |||||||||||||||
Fair value of previously-held equity investment | — | — | 109,231 | 3,937 | 113,168 | |||||||||||||||
Fair value of common stock issued | — | 15,183 | — | 1,000 | 16,183 | |||||||||||||||
Loan forgiveness | — | — | — | 1,488 | 1,488 | |||||||||||||||
Deferred purchase price consideration | — | — | — | 4,170 | 4,170 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Cash paid | $ | 120,490 | $ | 64,356 | $ | 279,618 | �� | $ | 139,258 | $ | 603,722 | |||||||||
|
|
|
|
|
|
|
|
|
|
(1) | Includes cash acquired of approximately $23.2 million. |
The following are the intangible assets acquired and their respective amortizable lives (dollars in thousands):
Avee | Arriva | Axis-Shield | Other | Total | Weighted- average Useful Life | |||||||||||||||||||
Core technology and patents | $ | — | $ | — | $ | 56,919 | $ | 19,740 | $ | 76,659 | 10.1 years | |||||||||||||
Database | — | — | — | 64 | 64 | 3.0 years | ||||||||||||||||||
Trademarks and trade names | 1,700 | 1,000 | 4,145 | 7,352 | 14,197 | 10.1 years | ||||||||||||||||||
Customer relationships | 71,500 | 23,000 | 114,174 | 35,051 | 243,725 | 12.3 years | ||||||||||||||||||
Non-compete agreements | 3,200 | 3,400 | — | 1,706 | 8,306 | 5.3 years | ||||||||||||||||||
Software | — | — | — | 7,400 | 7,400 | 10.9 years | ||||||||||||||||||
Other | — | — | — | 7,767 | 7,767 | 15.6 years | ||||||||||||||||||
In-process research and development | — | — | 58,132 | 374 | 58,506 | N/A | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total intangible assets | $ | 76,400 | $ | 27,400 | $ | 233,370 | $ | 79,454 | $ | 416,624 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
F-27
Table of Contents
ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(4) Business Combinations (Continued)
(c) Acquisitions in 2010
(i) Immunalysis
On August 16, 2010, we acquired Diagnostixx of California, Corp. (d/b/a Immunalysis Corporation), or Immunalysis, located in Pomona, California, a privately-owned manufacturer and marketer of abused and prescription drug screening solutions used by clinical reference and forensic/crime laboratories. The aggregate purchase price was $56.2 million, which consisted of an initial cash payment totaling $55.0 million and a contingent consideration obligation of up to $5.0 million with an acquisition date fair value of $1.2 million. Included in our consolidated statement of operations for the year ended December 31, 2010 is revenue totaling approximately $7.9 million related to this acquired business. The operating results of this acquired operation are included in our professional diagnostics reporting unit and business segment. The amount allocated to goodwill from this acquisition is deductible for tax purposes.
(ii) Twist
On March 11, 2010, we acquired TwistDx, Inc., or Twist, headquartered in Cambridge, Massachusetts, a privately-owned research and development company with a research and development operation in the United Kingdom. The aggregate purchase price was $70.8 million, which consisted of an initial cash payment totaling $35.2 million and a contingent consideration obligation of up to $125.0 million with an acquisition date fair value of $35.6 million. Included in our consolidated statement of operations for the year ended December 31, 2010 is revenue totaling approximately $0.2 million related to this acquired business. The operating results of this acquired operation are included in our professional diagnostics reporting unit and business segment. The amount allocated to goodwill from this acquisition is not deductible for tax purposes.
(iii) Alere Toxicology
On February 17, 2010, we acquired Kroll Laboratory Specialists, Inc., subsequently renamed Alere Toxicology Services, or Alere Toxicology, headquartered in Gretna, Louisiana, which provides forensic quality substance abuse testing products and services across the United States. The aggregate purchase price was $109.5 million, which was paid in cash. Included in our consolidated statement of operations for the year ended December 31, 2010 is revenue totaling approximately $31.3 million related to this acquired business. The operating results of Alere Toxicology are included in our professional diagnostics reporting unit and business segment. The amount allocated to goodwill from this acquisition is deductible for tax purposes.
(iv) Standard Diagnostics
On February 8, 2010, we acquired a 61.92% ownership interest in Standard Diagnostics via a tender offer for approximately $162.1 million. On March 22, 2010, we acquired an incremental 13.37% ownership interest in Standard Diagnostics via a follow-on tender offer for approximately $36.2 million. In June 2010, we acquired an incremental 2.84% ownership interest for approximately $7.3 million, bringing our acquisition-related aggregate ownership interest in Standard Diagnostics to approximately 78.13%. Standard Diagnostics specializes in the medical diagnostics industry. Its main product lines relate to diagnostic reagents and devices for hepatitis, infectious diseases, tumor markers, fertility, drugs of abuse, urine strips and protein strips. The aggregate purchase price was $205.6 million in cash. Included in our consolidated statement of operations for the year ended December 31, 2010 is revenue totaling approximately $78.9 million related to Standard Diagnostics. The operating results of
F-28
Table of Contents
ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(4) Business Combinations (Continued)
Standard Diagnostics are included in our professional diagnostics reporting unit and business segment. The amount allocated to goodwill from this acquisition is not deductible for tax purposes. During the fourth quarter of 2010, we acquired the remaining outstanding minority interests in Standard Diagnostics bringing our aggregate ownership interest to approximately 100% as of December 31, 2010. In connection with our purchase of shares from a certain minority shareholder, we incurred a compensation charge of $60.1 million, as a result of the transition of the day-to-day management control of the business to us.
(v) Other acquisitions in 2010
During 2010, we acquired the following businesses for an aggregate purchase price of $161.9 million, which consisted of initial cash payments totaling $108.3 million, contingent consideration obligations with an acquisition date fair value of $52.9 million and deferred purchase price consideration with an acquisition date present value of $0.7 million.
• | RMD Networks, Inc., or RMD, located in Denver, Colorado, a provider of clinical groupware software and services designed to improve communication and coordination of care among providers, patients, and payers in the healthcare environment (Acquired January 2010) |
• | certain assets of Streck, Inc., or Streck, located in Nebraska, a manufacturer of hematology, chemistry and immunology products for the clinical laboratory (Acquired January 2010) |
• | assets of the diagnostics division of Micropharm Ltd., or Micropharm, located in Wales, United Kingdom, an expert in high quality antibody production in sheep for both diagnostic and therapeutic purposes, providing antisera on a contract basis for U.K. and overseas companies and academic institutions, mainly for research, therapeutic and diagnostic uses (Acquired March 2010) |
• | Quantum Diagnostics Group Limited, or Quantum, headquartered in Essex, England, an independent provider of drug testing products and services to healthcare professionals across the U.K. and Europe (Acquired April 2010) |
• | assets of the workplace health division of Good Health Solutions Pty Ltd., subsequently renamed Alere Health Pty Ltd., located in East Sydney, Australia, an important player in the Australian health and wellness market, focusing on health screenings, health related consulting services, health coaching and fitness instruction (Acquired April 2010) |
• | certain assets of Unotech Diagnostics, Inc., or Unotech, located in California, a privately-owned company engaged in the development, formulation, manufacture, packaging, supply and distribution of our BladderCheck NMP22 lateral flow test and related lateral flow products (Acquired June 2010) |
• | Scipac Holdings Limited, or Scipac, headquartered in Kent, England, a diagnostic reagent company with an extensive product portfolio supplying purified human antigens, recombinant proteins and disease state plasma to a global customer base (Acquired June 2010) |
• | Ionian Technologies, Inc., or Ionian, located in San Diego, California (Acquired July 2010) |
• | AdnaGen AG, now known as AdnaGen GmbH, or AdnaGen, located in Langenhagen, Germany, a company that focuses on the development of innovative tumor diagnostics for the detection of rare cells (Acquired November 2010) |
F-29
Table of Contents
ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(4) Business Combinations (Continued)
• | Medlab Produtos Medicos Hospitalares Ltda, now known as Alere S.A., located in San Paulo, Brazil, a distributor of medical instruments and reagents to public and private laboratories throughout Brazil and Uruguay (Acquired December 2010) |
• | Capital Toxicology, LLC, or Capital Toxicology, located in Austin, Texas, a privately-held toxicology business specializing in pain management services (Acquired December 2010) |
The operating results of the acquired businesses mentioned above, except for RMD and Alere Health Pty Ltd., are included in our professional diagnostics reporting unit and business segment. The operating results of RMD and Alere Health Pty Ltd. are included in our health information solutions reporting unit and business segment. Our consolidated statement of operations for the year ended December 31, 2010 included revenue totaling approximately $12.6 million related to these businesses. Goodwill has been recognized in all of the acquisitions, with the exception of Unotech and Micropharm, and amounted to approximately $116.2 million. Goodwill related to the acquisition of Capital Toxicology, which totaled $11.6 million, is deductible for tax purposes. Goodwill related to all other acquisitions is not deductible for tax purposes.
A summary of the aggregate purchase price allocation for the acquisitions consummated in 2010 is as follows (in thousands):
Immunalysis | Twist | Alere Toxicology | Standard Diagnostics | Other | Total | |||||||||||||||||||
Current assets(1) | $ | 6,933 | $ | 373 | $ | 6,044 | $ | 51,056 | $ | 20,829 | $ | 85,235 | ||||||||||||
Property, plant and equipment | 1,076 | 152 | 3,300 | 18,580 | 13,149 | 36,257 | ||||||||||||||||||
Goodwill | 18,234 | 61,463 | 53,435 | 33,798 | 116,186 | 283,116 | ||||||||||||||||||
Intangible assets | 30,600 | 15,700 | 48,400 | 131,179 | 57,976 | 283,855 | ||||||||||||||||||
Other non-current assets | — | — | — | 16,426 | 562 | 16,988 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total assets acquired | 56,843 | 77,688 | 111,179 | 251,039 | 208,702 | 705,451 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Current liabilities | 569 | 731 | 1,640 | 13,389 | 14,749 | 31,078 | ||||||||||||||||||
Non-current liabilities | 50 | 6,107 | — | 32,088 | 32,024 | 70,269 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total liabilities assumed | 619 | 6,838 | 1,640 | 45,477 | 46,773 | 101,347 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net assets acquired | 56,224 | 70,850 | 109,539 | 205,562 | 161,929 | 604,104 | ||||||||||||||||||
Less: | ||||||||||||||||||||||||
Contingent consideration | 1,200 | 35,600 | — | — | 52,908 | 89,708 | ||||||||||||||||||
Present value of deferred purchase price consideration | — | — | — | — | 688 | 688 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Cash paid | $ | 55,024 | $ | 35,250 | $ | 109,539 | $ | 205,562 | $ | 108,333 | $ | 513,708 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Includes cash acquired of approximately $22.9 million. |
F-30
Table of Contents
ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(4) Business Combinations (Continued)
The following are the intangible assets acquired and their respective amortizable lives (dollars in thousands):
Immunalysis | Twist | Alere Toxicology | Standard Diagnostics | Other | Total | Weighted- average Useful Life | ||||||||||||||||||||||
Core technology and patents | $ | 8,800 | $ | 8,600 | $ | 13,300 | $ | 62,135 | $ | 14,050 | $ | 106,885 | 12.4 years | |||||||||||||||
Quality systems | — | — | — | — | 153 | 153 | 5 years | |||||||||||||||||||||
Database | — | — | — | — | 654 | 654 | 3 years | |||||||||||||||||||||
Trademarks and trade names | 800 | — | — | 9,350 | 1,504 | 11,654 | 6.3 years | |||||||||||||||||||||
License agreements | — | — | — | — | 459 | 459 | 5 years | |||||||||||||||||||||
Customer relationships | 19,900 | — | 35,100 | 45,754 | 24,578 | 125,332 | 14.3 years | |||||||||||||||||||||
Non-compete agreements | 300 | — | — | 255 | 2,095 | 2,650 | 4.2 years | |||||||||||||||||||||
Software | — | — | — | — | 5,000 | 5,000 | 7 years | |||||||||||||||||||||
Distribution agreement | 800 | — | — | — | — | 800 | 14 years | |||||||||||||||||||||
Manufacturing know-how | — | — | — | — | 3,683 | 3,683 | 10.5 years | |||||||||||||||||||||
In-process research and development | — | 7,100 | — | 13,685 | 5,800 | 26,585 | N/A | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total intangible assets | $ | 30,600 | $ | 15,700 | $ | 48,400 | $ | 131,179 | $ | 57,976 | $ | 283,855 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(5) Goodwill and Other Intangible Assets
The following is a summary of goodwill and other intangible assets as of December 31, 2012 (dollars in thousands):
Gross Carrying Amount | Accumulated Amortization and Impairment Losses | Net Carrying Value | Weighted- average Useful Life | |||||||||||||
Amortized intangible assets: | ||||||||||||||||
Core technology and patents | $ | 941,940 | $ | 326,044 | $ | 615,896 | 14.12 years | |||||||||
|
|
|
|
|
| |||||||||||
Other intangible assets: | ||||||||||||||||
Supplier relationships | 18,629 | 15,862 | 2,767 | 9.25 years | ||||||||||||
Trademarks and trade names | 252,028 | 116,571 | 135,457 | 10.30 years | ||||||||||||
License agreements | 17,507 | 11,126 | 6,381 | 4.47 years | ||||||||||||
Customer relationships | 1,910,752 | 930,542 | 980,210 | 15.76 years | ||||||||||||
Manufacturing know-how | 15,332 | 9,607 | 5,725 | 12.21 years | ||||||||||||
Other | 199,880 | 112,091 | 87,789 | 7.41 years | ||||||||||||
|
|
|
|
|
| |||||||||||
Total other intangible assets | 2,414,128 | 1,195,799 | 1,218,329 | |||||||||||||
|
|
|
|
|
| |||||||||||
Total intangible assets with finite lives | $ | 3,356,068 | $ | 1,521,843 | $ | 1,834,225 | ||||||||||
|
|
|
|
|
| |||||||||||
Intangible assets with indefinite lives: | ||||||||||||||||
Goodwill | $ | 4,438,374 | $ | 1,389,969 | $ | 3,048,405 | ||||||||||
Other intangible assets(1) | 62,935 | 26,484 | 36,451 | |||||||||||||
|
|
|
|
|
| |||||||||||
Total intangible assets with indefinite lives | $ | 4,501,309 | $ | 1,416,453 | $ | 3,084,856 | ||||||||||
|
|
|
|
|
|
(1) | Primarily includes an in-process research and development asset recorded in connection with certain acquisitions. |
F-31
Table of Contents
ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(5) Goodwill and Other Intangible Assets (Continued)
The following is a summary of goodwill and other intangible assets as of December 31, 2011 (dollars in thousands):
Gross Carrying Amount | Accumulated Amortization and Impairment Losses | Net Carrying Value | Weighted- average Useful Life | |||||||||||||
Amortized intangible assets: | ||||||||||||||||
Core technology and patents | $ | 756,835 | $ | 253,266 | $ | 503,569 | 13.16 years | |||||||||
|
|
|
|
|
| |||||||||||
Other intangible assets: | ||||||||||||||||
Supplier relationships | 18,652 | 14,709 | 3,943 | 9.19 years | ||||||||||||
Trademarks and trade names | 232,938 | 86,932 | 146,006 | 9.73 years | ||||||||||||
License agreements | 17,429 | 10,714 | 6,715 | 4.47 years | ||||||||||||
Customer relationships | 1,753,985 | 717,826 | 1,036,159 | 15.55 years | ||||||||||||
Manufacturing know-how | 10,996 | 6,139 | 4,857 | 12.70 years | ||||||||||||
Other | 168,005 | 83,329 | 84,676 | 7.90 years | ||||||||||||
|
|
|
|
|
| |||||||||||
Total other intangible assets | 2,202,005 | 919,649 | 1,282,356 | |||||||||||||
|
|
|
|
|
| |||||||||||
Total intangible assets with finite lives | $ | 2,958,840 | $ | 1,172,915 | $ | 1,785,925 | ||||||||||
|
|
|
|
|
| |||||||||||
Intangible assets with indefinite lives: | ||||||||||||||||
Goodwill | $ | 4,211,240 | $ | 1,389,969 | $ | 2,821,271 | ||||||||||
Other intangible assets(1) | 76,686 | 7,140 | 69,546 | |||||||||||||
|
|
|
|
|
| |||||||||||
Total intangible assets with indefinite lives | $ | 4,287,926 | $ | 1,397,109 | $ | 2,890,817 | ||||||||||
|
|
|
|
|
|
(1) | Primarily includes an in-process research and development asset recorded in connection with certain acquisitions. |
The estimated useful lives of the individual categories of intangible assets were based on the nature of the applicable intangible assets and the expected future cash flows to be derived from those intangible assets. Amortization of intangible assets with finite lives is recognized over the shorter of the respective lives of the underlying license agreements, if applicable, or the period of time the assets are expected to contribute to future cash flows. We amortize our finite-lived intangible assets on patterns in which the economic benefits are expected to be realized. Amortization expense of intangible assets, which in the aggregate amounted to $346.9 million, $307.7 million and $298.1 million in 2012, 2011 and 2010, respectively, is included in cost of net revenue, research and development, sales and marketing and general and administrative expenses in the accompanying consolidated statements of operations. The allocation of amortization expense to the expense categories is based on the intended usage and the expected benefits of the intangible assets in relation to the expense categories.
The following is a summary of estimated aggregate amortization expense of intangible assets for each of the five succeeding fiscal years as of December 31, 2012 (in thousands):
2013 | $ | 299,473 | ||
2014 | $ | 256,907 | ||
2015 | $ | 232,489 | ||
2016 | $ | 204,639 | ||
2017 | $ | 163,382 |
During the fourth quarter, we perform our annual impairment tests of the carrying value of our goodwill by reporting unit. Our annual impairment review conducted during the fourth quarters of 2011 and 2010 indicated that a goodwill impairment charge was required in our health information solutions business segment and reporting unit. For further discussion see Note 2(h).
F-32
Table of Contents
ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(5) Goodwill and Other Intangible Assets (Continued)
Goodwill amounts for our professional diagnostics, health information solutions and consumer diagnostics reporting units are summarized as follows (in thousands):
Professional Diagnostics | Health Information Solutions | Consumer Diagnostics | Total | |||||||||||||
Goodwill at December 31, 2010 | $ | 2,326,114 | $ | 452,962 | $ | 52,224 | $ | 2,831,300 | ||||||||
Acquisitions(1) | 352,986 | 31,043 | — | 384,029 | ||||||||||||
Goodwill impairment charge(2) | — | (383,612 | ) | — | (383,612 | ) | ||||||||||
Other(3) | (9,499 | ) | (634 | ) | (313 | ) | (10,446 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Goodwill at December 31, 2011 | $ | 2,669,601 | $ | 99,759 | $ | 51,911 | $ | 2,821,271 | ||||||||
Acquisitions(1) | 222,306 | 24,604 | — | 246,910 | ||||||||||||
Fair value of non-controlling interest(4) | (36,040 | ) | — | — | (36,040 | ) | ||||||||||
Other(3) | 10,370 | 680 | 5,214 | 16,264 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Goodwill at December 31, 2012 | $ | 2,866,237 | $ | 125,043 | $ | 57,125 | $ | 3,048,405 | ||||||||
|
|
|
|
|
|
|
|
(1) | Includes initial purchase price allocation, purchase accounting adjustments recorded to the acquired entities’ opening balance sheet and additional payments made for earn-outs and milestones achieved. |
(2) | We recorded a goodwill impairment charge of approximately $383.6 million during 2011 related to our health information solutions business segment and reporting unit. Any further reduction or impairment of the value of goodwill or other intangible assets will result in additional charges against earnings, which could materially reduce our reported results of operations in future periods. |
(3) | These amounts relate primarily to adjustments resulting from fluctuations in foreign currency exchange rates. |
(4) | This is the correction of a prior period balance sheet classification error which we do not believe is material to our 2011 or 2012 annual financial statements, or any previously reported quarterly financial statements, and represents the fair value of the non-controlling interest as of December 31, 2011 related to our acquisition of Axis-Shield. |
We generally expense costs incurred for the internal development of intangible assets, except for costs that are incurred to establish patents and trademarks, such as legal fees for initiating, filing and obtaining the patents and trademarks. As of December 31, 2012 and 2011, we had approximately $9.7 million and $9.2 million, respectively, of costs capitalized, net of amortization, in connection with establishing patents and trademarks which are included in other intangible assets, net, in the accompanying consolidated balance sheets. Upon the initial filing of the patents and trademarks, we commence amortization of such intangible assets over their estimated useful lives. Costs incurred to maintain the patents and trademarks are expensed as incurred.
F-33
Table of Contents
ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(6) Long-term Debt
We had the following long-term debt balances outstanding (in thousands):
December 31, 2012 | December 31, 2011 | |||||||
A term loans(1)(2) | $ | 878,438 | $ | 917,188 | ||||
B term loans(1) | 913,438 | 922,688 | ||||||
Incremental B-1 term loans(1) | 247,500 | 250,000 | ||||||
Incremental B-2 term loans(1) | 196,739 | — | ||||||
Revolving line of credit(1) | 22,500 | — | ||||||
7.25% Senior notes | 450,000 | — | ||||||
7.875% Senior notes | 1,809 | 245,621 | ||||||
9% Senior subordinated notes | 392,933 | 391,233 | ||||||
8.625% Senior subordinated notes | 400,000 | 400,000 | ||||||
3% Convertible senior subordinated notes | 150,000 | 150,000 | ||||||
Other lines of credit | 31,957 | 19,603 | ||||||
Other | 3,593 | 32,210 | ||||||
|
|
|
| |||||
3,688,907 | 3,328,543 | |||||||
Less: Current portion | (60,232 | ) | (61,092 | ) | ||||
|
|
|
| |||||
$ | 3,628,675 | $ | 3,267,451 | |||||
|
|
|
|
(1) | Incurred under our secured credit facility. |
(2) | Includes “A” term loans and “Delayed Draw” term loans under our secured credit facility. |
In connection with our significant long-term debt issuances, we recorded interest expense, including amortization and write-offs of deferred financing costs and original issue discounts, in our consolidated statements of operations for the years ended December 31, 2012, 2011 and 2010, respectively, as follows (in thousands):
2012 | 2011 | 2010 | ||||||||||
Secured credit facility(1) | $ | 104,916 | $ | 41,478 | $ | — | ||||||
Former secured credit facility(2) | — | 53,841 | (3) | 60,594 | ||||||||
7.25% Senior notes | 1,994 | — | — | |||||||||
7.875% Senior notes | 44,994 | (4) | 22,291 | 21,300 | ||||||||
9% Senior subordinated notes | 41,474 | 40,248 | 38,337 | |||||||||
8.625% Senior subordinated notes | 37,096 | 36,437 | 9,892 | |||||||||
3% Convertible senior subordinated notes | 4,984 | 4,988 | 4,986 | |||||||||
|
|
|
|
|
| |||||||
$ | 235,458 | $ | 199,283 | $ | 135,109 | |||||||
|
|
|
|
|
|
(1) | Includes “A” term loans, including the “Delayed-Draw” term loans; “B” term loans; “Incremental B-1” term loans; “Incremental B-2” term loans; and revolving line-of-credit loans. The amount includes $5.0 million and $2.9 million in 2012 and 2011, respectively, related to the amortization of fees paid for certain debt modifications. |
(2) | Consists of loans under our former First Lien Credit Agreement and Second Lien Credit Agreement. |
(3) | Amount includes approximately $29.7 million recorded in connection with the termination of our former secured credit facility and related interest rate swap agreement, coupled with the amortization of fees paid for certain debt modifications. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(6) Long-term Debt (Continued)
(4) | Amount includes approximately $23.2 million loss recorded in connection with the repurchase of substantially all of our 7.875% senior notes. Included in the $23.2 million is a $12.3 million make-whole payment which has been classified within cash flow from financing activities in our consolidated statement of cash flows. |
The following describes each of the debt instruments listed above:
(a) Secured Credit Facility
On June 30, 2011, we entered into a Credit Agreement, or secured credit facility, with certain lenders, General Electric Capital Corporation as administrative agent and collateral agent, and certain other agents and arrangers, and, along with certain of our subsidiaries, a related guaranty and security agreement. On December 7, 2011, we entered into an amendment to our secured credit facility to provide an additional term loan facility for the “Incremental B-1” term loans described below (all of which we borrowed on that date). On March 28, 2012, we entered into a further amendment to our secured credit facility to provide an additional term loan facility for the “Incremental B-2” term loans described below (all of which we borrowed on that date). The secured credit facility, as amended, provides for credit facilities totaling $2.55 billion in the aggregate, consisting of term loans in the aggregate principal amount of $2.3 billion (consisting of “A” term loans (including “Delayed Draw” term loans) in the aggregate principal amount of $925.0 million, “B” term loans in the aggregate principal amount of $925.0 million, “Incremental B-1” term loans in the aggregate principal amount of $250.0 million and “Incremental B-2” term loans in the aggregate principal amount of $200.0 million), all of which we have fully drawn, and, subject to our continued compliance with the secured credit facility, a $250.0 million revolving line of credit (which includes a $50.0 million sublimit for the issuance of letters of credit).
We must repay the “A” term loans (excluding the “Delayed Draw” term loans) in eighteen consecutive quarterly installments, which began on December 31, 2011 and continue through March 31, 2016, in the amount of $7,812,500 each, and a final installment on June 30, 2016, in the amount of $484,375,000; we must repay the “Delayed-Draw” term loans included within the “A” term loans in fifteen consecutive quarterly installments, which began on September 30, 2012 and continue through March 31, 2016, in the amount of $3,750,000 each, and a final installment on June 30, 2016, in the amount of $243,750,000. We must repay the “B” term loans in twenty-two consecutive quarterly installments, which began on December 31, 2011 and continue through March 31, 2017, in the amount of $2,312,500 each, and a final installment on June 30, 2017, in the amount of $874,125,000. We must repay the “Incremental B-1” term loans in twenty-one consecutive quarterly installments, which began on March 31, 2012 and continue through March 31, 2017, in the amount of $625,000 each, and a final installment on June 30, 2017, in the amount of $236,875,000. We must repay the “Incremental B-2” term loans in twenty consecutive quarterly installments, which began on June 30, 2012 and continue through March 31, 2017, in the amount of $500,000 each, and a final installment on June 30, 2017, in the amount of $190,000,000. We have paid in full all installments of all term loans due on or before December 31, 2012. We may repay any borrowings under the revolving line of credit at any time without premium or penalty, but we must repay all such borrowings in no event later than June 30, 2016. Notwithstanding the foregoing, and subject to certain exceptions provided for in the Credit Agreement, in the event that any of our existing 9% senior subordinated notes or existing 3% convertible senior subordinated notes remain outstanding on the date that is six months prior to the relevant maturity date thereof, respectively, then all of the term loans and revolving credit loans under the secured credit facility shall instead mature in full on the relevant prior date.
The “A” term loans (including the “Delayed Draw” term loans) and our borrowings under the revolving credit facility bear interest at a rateper annumof, at our option, either (i) the Base Rate, as
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ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(6) Long-term Debt (Continued)
defined in the Credit Agreement, plus an applicable margin, which varies between 1.75% and 2.50% depending on our consolidated secured leverage ratio, or (ii) the Eurodollar Rate, as defined in the Credit Agreement, plus an applicable margin, which varies between 2.75% and 3.50% depending on our consolidated secured leverage ratio. The “B” term loans, the “Incremental B-1” term loans and the “Incremental B-2” term loans bear interest at a rateper annumof, at our option, either (i) the Base Rate, as defined in the Credit Agreement, plus an applicable margin, which varies between 2.50% and 3.25% depending on our consolidated secured leverage ratio, or (ii) the Eurodollar Rate, as defined in the Credit Agreement, plus an applicable margin, which varies between 3.50% and 4.25% depending on our consolidated secured leverage ratio. Interest on “B” term loans, “Incremental B-1” term loans and “Incremental B-2” term loans based on the Eurodollar Rate is subject to a 1.00% floor with respect to the base Eurodollar Rate. We are required to pay a fee on the unused portion of the revolving credit facility at a rateper annum of 0.50%. As of December 31, 2012, the “A” term loans (including the “Delayed-Draw” term loans), the “B” term loans, the “Incremental B-1” term loans, the “Incremental B-2” term loans and the revolving line of credit loans bore interest at rates of 3.21%, 4.75%, 4.75%, 4.75% and 3.21%, respectively,per annum.
As of December 31, 2012, we were in compliance with all financial covenants related to the above debt, which consisted principally of a maximum consolidated secured leverage ratio, a minimum consolidated interest coverage ratio and a limit on capital expenditures.
As of December 31, 2012, accrued interest related to the secured credit facility amounted to $1.4 million.
(b) First Lien Credit Agreement and Second Lien Credit Agreement
In connection with entering into the secured credit facility on June 30, 2011, we repaid in full all outstanding indebtedness under and terminated our First Lien Credit Agreement, or senior secured credit facility, and our Second Lien Credit Agreement, or junior secured credit facility (and, collectively with the senior secured credit facility, our former secured credit facility), each dated June 26, 2007, with certain lenders, General Electric Capital Corporation, as administrative agent and collateral agent, and certain other agents and arrangers, and certain related guaranty and security agreements. The aggregate outstanding principal amount of the loans repaid under our former secured credit facility in connection with the termination thereof was approximately $1.2 billion.
In August 2007, we entered into interest rate swap contracts, with an effective date of September 28, 2007, that had a total notional value of $350.0 million and an original maturity date of September 28, 2010. These interest rate swap contracts paid us variable interest at the three-month LIBOR rate, and we paid the counterparties a fixed rate of 4.85%. In March 2009, we extended our August 2007 interest rate hedge for an additional two-year period commencing in September 2010 at a one-month LIBOR rate of 2.54%. These interest rate swap contracts were entered into to convert $350.0 million of the $1.2 billion variable rate term loans under our former secured credit facility into fixed rate debt. In connection with entering into the secured credit facility on June 30, 2011, we paid $10.1 million to terminate these interest rate swap contracts which was recorded in interest expense, including amortization of original issue discounts and deferred financing costs, in our consolidated statements of operations.
In January 2009, we entered into interest rate swap contracts, with an effective date of January 14, 2009, that had a total notional value of $500.0 million and a maturity date of January 5, 2011. These interest rate swap contracts paid us variable interest at the one-month LIBOR rate, and
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ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(6) Long-term Debt (Continued)
we paid the counterparties a fixed rate of 1.195%. These interest rate swap contracts were entered into to convert $500.0 million of the $1.2 billion variable rate term loan under our former secured credit facility into fixed rate debt. We did not extend the terms of these interest rate swap contracts after January 5, 2011.
(c) 7.25% Senior Notes
On December 11, 2012, we sold a total of $450.0 million aggregate principal amount of 7.25% senior notes due 2018, or the 7.25% senior notes, in a private placement to initial purchasers, who agreed to resell the notes only to qualified institutional buyers and to persons outside the United States; we sold the 7.25% senior notes at an initial offering price of 100%. Net proceeds from this offering amounted to $443.2 million, which was net of the underwriters’ commissions and offering expenses totaling $6.8 million. We used $267.4 million of the net proceeds to purchase $248.2 million outstanding principal amount of the 7.875% senior notes as described below and $170.0 million to pay down a portion of the outstanding balance under our revolving line of credit.
The 7.25% senior notes were issued under an indenture dated August 11, 2009, as amended or supplemented, the 7.25% Indenture. The 7.25% senior notes accrue interest at the rate of 7.25% per annum. Interest on the 7.25% senior notes is payable semi-annually on June 15 and December 15, beginning on June 15, 2013. The 7.25% senior notes mature on July 1, 2018, unless earlier redeemed.
We may redeem the 7.25% senior notes, in whole or part, at any time on or after December 15, 2015, by paying the principal amount of the notes being redeemed plus a declining premium, plus accrued and unpaid interest to, but excluding, the redemption date. The premium declines from 3.625% during the twelve months on and after December 15, 2015 to 1.813% during the six months on and after December 15, 2016 to zero on and after June 15, 2017. At any time prior to December 15, 2015, we may redeem up to 35% of the aggregate principal amount of the 7.25% senior notes with money that we raise in certain equity offerings, so long as (i) we pay 107.25% of the principal amount of the notes being redeemed, plus accrued and unpaid interest to, but excluding, the redemption date; (ii) we redeem the notes within 90 days of completing such equity offering; and (iii) at least 65% of the aggregate principal amount of the 7.25% senior notes remains outstanding afterwards. In addition, at any time prior to December 15, 2015, we may redeem some or all of the 7.25% senior notes by paying the principal amount of the notes being redeemed plus a make-whole premium, plus accrued and unpaid interest to, but excluding, the redemption date.
If a change of control occurs, subject to specified conditions, we must give holders of the 7.25% senior notes an opportunity to sell their notes to us at a purchase price of 101% of the principal amount of the notes, plus accrued and unpaid interest to, but excluding, the date of the purchase.
If we, or our subsidiaries, engage in asset sales, we, or they, generally must either invest the net cash proceeds from such sales in our or their businesses within a specified period of time, prepay certain indebtedness or make an offer to purchase a principal amount of the 7.25% senior notes equal to the excess net cash proceeds, subject to certain exceptions. The purchase price of the notes would be 100% of their principal amount, plus accrued and unpaid interest.
The 7.25% senior notes are unsecured and are equal in right of payment to all of our existing and future senior debt, including our borrowings under our secured credit facility. Our obligations under the 7.25% senior notes and the 7.25% Indenture are fully and unconditionally guaranteed, jointly and
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ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(6) Long-term Debt (Continued)
severally, on an unsecured senior basis by certain of our domestic subsidiaries, and the obligations of such domestic subsidiaries under their guarantees are equal in right of payment to all of their existing and future senior debt. See Note 24 for guarantor financial information.
The 7.25% Indenture contains covenants that limit our ability, and the ability of our subsidiaries, to, among other things, incur additional debt; pay dividends on capital stock or redeem, repurchase or retire capital stock or subordinated debt; make certain investments; create liens on assets; transfer or sell assets; engage in transactions with affiliates; create restrictions on our or their ability pay dividends or make loans, asset transfers or other payments to us or them; issue capital stock; engage in any business, other than our or their existing businesses and related businesses; enter into sale and leaseback transactions; incur layered indebtedness; and consolidate, merge or transfer all or substantially all of our, or their, assets, taken as a whole. These covenants are subject to certain exceptions and qualifications. The 7.25% Indenture contains customary events of default entitling the trustee or the holders of the 7.25% senior notes to declare all amounts owed pursuant to the 7.25% senior notes immediately payable if we violate certain of our obligations.
As of December 31, 2012, accrued interest related to the 7.25% senior notes amounted to $1.9 million.
(d) 7.875% Senior Notes
During the third quarter of 2009, we sold a total of $250.0 million aggregate principal amount of 7.875% senior notes due 2016, or the 7.875% senior notes, in two separate transactions on August 11, 2009 and September 28, 2009. Net proceeds from these offerings amounted to approximately $240.0 million, which was net of underwriters’ commissions totaling $3.7 million and original issue discount totaling $6.3 million. The 7.875% senior notes were issued under an indenture dated August 11, 2009, as amended or supplemented, the 7.875% Indenture. The 7.875% senior notes accrued interest from the dates of their respective issuances at the rate of 7.875% per annum. Interest on the notes was payable semi-annually on February 1 and August 1, commencing on February 1, 2010. The terms of the notes provided that they matured on February 1, 2016, unless earlier redeemed.
In December 2012, we used $267.4 million of the net proceeds of our sale of the 7.25% senior notes to purchase $248.2 million outstanding principal amount of the 7.875% senior notes. The purchased 7.875% senior notes represented 99.3% of the total then-outstanding principal amount of the 7.875% senior notes.
On February 13, 2013, we redeemed the remaining $1.8 million outstanding principal amount of the 7.875% senior notes pursuant to our optional redemption right under the 7.875% Indenture, and we subsequently terminated the 7.875% Indenture.
As of December 31, 2012, accrued interest related to the 7.875% senior notes amounted to $0.1 million.
(e) Senior Subordinated Notes
On May 12, 2009, we sold $400.0 million aggregate principal amount of 9% senior subordinated notes due 2016, or the 9% subordinated notes, in a public offering at an initial offering price of 96.865%. Net proceeds from this offering amounted to $379.5 million, which was net of underwriters’ commissions totaling $8.0 million and original issue discount totaling $12.5 million.
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ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(6) Long-term Debt (Continued)
On September 21, 2010, we sold $400.0 million aggregate principal amount of 8.625% senior subordinated notes due 2018, or the 8.625% subordinated notes, in a private placement to initial purchasers, who agreed to resell the notes only to qualified institutional buyers and to persons outside the United States; we sold the 8.625% subordinated notes at an initial offering price of 100%. Net proceeds from this offering amounted to $393.0 million, which was net of underwriters’ commissions totaling $7.0 million. These notes were subsequently exchanged for new notes having substantially the same terms in an exchange offer registered under the Securities Act. We refer to the 9% subordinated notes and the 8.625% subordinated notes collectively as our senior subordinated notes.
The 9% subordinated notes, which were issued under an indenture dated May 12, 2009, as amended or supplemented, accrue interest from the date of their issuance, or May 12, 2009, at the rate of 9% per annum. Interest on the 9% subordinated notes is payable semi-annually on May 15 and November 15, beginning on November 15, 2009. The 9% subordinated notes mature on May 15, 2016, unless earlier redeemed. The 8.625% subordinated notes, which were issued under a supplemental indenture dated September 21, 2010, as amended or supplemented, accrue interest from the date of their issuance, or September 21, 2010, at the rate of 8.625% per annum. Interest on the 8.625% notes is payable semi-annually on April 1 and October 1, beginning on April 1, 2011. The 8.625% subordinated notes mature on October 1, 2018, unless earlier redeemed.
We may redeem the 9% subordinated notes, in whole or part, at any time (which may be more than once) on or after May 15, 2013, by paying the principal amount of the notes being redeemed plus a declining premium, plus accrued and unpaid interest to, but excluding, the redemption date. The premium declines from 4.50% during the twelve months after May 15, 2013 to 2.25% during the twelve months after May 15, 2014 to zero on and after May 15, 2015. In addition, at any time prior to May 15, 2013, we may redeem some or all of the 9% subordinated notes by paying the principal amount of the notes being redeemed plus a make-whole premium, plus accrued and unpaid interest to, but excluding, the redemption date.
We may redeem the 8.625% subordinated notes, in whole or part, at any time (which may be more than once) on or after October 1, 2014, by paying the principal amount of the notes being redeemed plus a declining premium, plus accrued and unpaid interest to, but excluding, the redemption date. The premium declines from 4.313% during the twelve months on and after October 1, 2014 to 2.156% during the twelve months on and after October 1, 2015 to zero on and after October 1, 2016. Prior to October 1, 2013, we may redeem, in whole or part, at any time (which may be more than once), up to 35% of the aggregate principal amount of the 8.625% subordinated notes with money that we raise in certain equity offerings so long as (i) we pay 108.625% of the principal amount of the notes being redeemed, plus accrued and unpaid interest to, but excluding, the redemption date; (ii) we redeem the notes within 90 days of completing such equity offering; and (iii) at least 65% of the aggregate principal amount of the 8.625% subordinated notes, including any 8.625% subordinated notes issued after September 21, 2010, remains outstanding afterwards. In addition, at any time prior to October 1, 2014, we may redeem some or all of the 8.625% subordinated notes by paying the principal amount of the notes being redeemed plus a make-whole premium, plus accrued and unpaid interest to, but excluding, the redemption date.
If a change of control occurs, subject to specified conditions, we must give holders of the senior subordinated notes an opportunity to sell their notes to us at a purchase price of 101% of the principal amount of the notes, plus accrued and unpaid interest to, but excluding, the date of the purchase.
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ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(6) Long-term Debt (Continued)
If we, or our subsidiaries, engage in asset sales, we, or they, generally must either invest the net cash proceeds from such sales in our or their businesses within a specified period of time, prepay senior debt or make an offer to purchase a principal amount of the senior subordinated notes (on apro ratabasis with respect to the 9% subordinated notes and the 8.625% subordinated notes) equal to the excess net cash proceeds, subject to certain exceptions. The purchase price of the senior subordinated notes would be 100% of their principal amount, plus accrued and unpaid interest.
The senior subordinated notes are unsecured and are subordinated in right of payment to all of our existing and future senior debt, including our borrowings under our secured credit facility and our senior notes, and equal in right of payment to our 3% convertible senior subordinated notes. Our obligations under the senior subordinated notes and the indentures under which they were issued are fully and unconditionally guaranteed, jointly and severally, on an unsecured senior subordinated basis by certain of our domestic subsidiaries, and the obligations of such domestic subsidiaries under their guarantees are subordinated in right of payment to all of their existing and future senior debt, including their guarantees with respect to our secured credit facility and our senior notes. See Note 24 for guarantor financial information.
The indentures under which the senior subordinated notes were issued contain covenants that limit our ability, and the ability of our subsidiaries, to, among other things, incur additional debt; pay dividends on capital stock or redeem, repurchase or retire capital stock or subordinated debt; make certain investments; create liens on assets; transfer or sell assets; engage in transactions with affiliates; create restrictions on our or their ability pay dividends or make loans, asset transfers or other payments to us or them; issue capital stock; engage in any business, other than our or their existing businesses and related businesses; enter into sale and leaseback transactions; incur layered indebtedness; and consolidate, merge or transfer all or substantially all of our, or their, assets, taken as a whole. These covenants are subject to certain exceptions and qualifications. These indentures contain customary events of default entitling the trustee or the holders of the relevant senior subordinated notes to declare all amounts owed pursuant the relevant senior subordinated notes immediately payable if we violate certain of our obligations with respect thereto.
As of December 31, 2012, accrued interest related to the 9% subordinated notes and the 8.625% subordinated notes amounted to $4.5 million and $8.6 million, respectively.
(f) 3% Convertible Senior Subordinated Notes
On May 14, 2007, we sold $150.0 million principal amount of 3% convertible senior subordinated notes due 2016, or the 3% convertible senior subordinated notes, in a private placement to qualified institutional buyers, at an initial offering price of 100%. At the initial conversion price of $52.30, the 3% convertible senior subordinated notes were convertible into an aggregate of 2.9 million shares of our common stock. The conversion price was subject to adjustment one year from the date of sale. Based upon the daily volume-weighted price per share of our common stock for the thirty consecutive trading days ending May 9, 2008, the conversion price decreased from $52.30 to $43.98 in May 2008. The decrease in conversion price resulted in additional shares of our common stock becoming issuable upon conversion of the 3% convertible senior subordinated notes. The 3% convertible senior subordinated notes are now convertible into 3.4 million shares of our common stock at a conversion price of $43.98. Interest accrues at 3% per annum, compounded daily, on the outstanding principal amount of the 3% convertible senior subordinated notes and is payable in arrears on May 15th and November 15th of each year, beginning on November 15, 2007. We have paid in full all installments of interest on the 3% convertible senior subordinated notes due on or before December 31, 2012.
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ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(6) Long-term Debt (Continued)
We may not redeem the 3% convertible senior subordinated notes prior to their stated maturity. In the event of certain fundamental changes (as defined in the indenture governing the 3% convertible senior subordinated notes) or a termination of trading of our common stock (as described in such indenture), we may be required to repurchase the 3% convertible senior subordinated notes for cash at a price equal to 100% of the unconverted principal amount thereof plus any accrued but unpaid interest. The 3% convertible senior subordinated notes are unsecured and are subordinated in right of payment to all of our existing and future senior debt, including borrowings under our secured credit facility and our senior notes, and equal in right of payment to our senior subordinated notes. The indenture governing the 3% convertible senior subordinated notes contains customary events of default entitling the trustee or the holders thereof to declare all amounts owed pursuant to the 3% convertible senior subordinated notes immediately payable if we violate certain of our obligations with respect thereto.
As of December 31, 2012, accrued interest related to the 3% convertible senior subordinated notes amounted to $0.6 million.
(g) Lines of Credit
Some of our subsidiaries maintain local lines of credit for short-term advances. Total available credit under the local lines of credit is approximately $19.7 million, of which $9.5 million was borrowed and outstanding as of December 31, 2012.
(h) Other Debt
Included in other debt for the year ended December 31, 2012 are borrowings by certain of our subsidiaries from various financial institutions. The borrowed funds are primarily used to fund capital expenditures and working capital requirements. Interest expense on these borrowings was $5.1 million for the year ended December 31, 2012.
(i) Maturities of Long-Term Debt
The following is a summary of the maturities of long-term debt outstanding on December 31, 2012 (in thousands):
2013 | $ | 60,232 | ||
2014 | 48,745 | |||
2015 | 49,304 | |||
2016 | 1,380,335 | |||
2017 | 1,304,904 | |||
Thereafter | 854,251 | |||
|
| |||
3,697,771 | ||||
Less: Original issue discounts | (8,864 | ) | ||
|
| |||
$ | 3,688,907 | |||
|
|
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ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(7) Fair Value Measurements
The following tables present information about our assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2012 and 2011, and indicates the fair value hierarchy of the valuation techniques we utilized to determine such fair value (in thousands):
Description | December 31, 2012 | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Unobservable Inputs (Level 3) | ||||||||||||
Assets: | ||||||||||||||||
Marketable securities | $ | 904 | $ | 904 | $ | — | $ | — | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total assets | $ | 904 | $ | 904 | $ | — | $ | — | ||||||||
|
|
|
|
|
|
|
| |||||||||
Liabilities: | ||||||||||||||||
Contingent consideration obligations(1) | $ | 176,172 | $ | — | $ | — | $ | 176,172 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total liabilities | $ | 176,172 | $ | — | $ | — | $ | 176,172 | ||||||||
|
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|
|
|
|
|
|
Description | December 31, 2011 | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Unobservable Inputs (Level 3) | ||||||||||||
Assets: | ||||||||||||||||
Marketable securities | $ | 3,340 | $ | 3,340 | $ | — | $ | — | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total assets | $ | 3,340 | $ | 3,340 | $ | — | $ | — | ||||||||
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|
|
|
|
|
|
| |||||||||
Liabilities: | ||||||||||||||||
Contingent consideration obligations(1) | $ | 140,047 | $ | — | $ | — | $ | 140,047 | ||||||||
Foreign exchange forward contracts(2) | 447 | — | 447 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total liabilities | $ | 140,494 | $ | — | $ | 447 | $ | 140,047 | ||||||||
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|
|
(1) | We determine the fair value of the contingent consideration obligations based on a probability-weighted approach derived from earn-out criteria estimates and a probability assessment with respect to the likelihood of achieving the various earn-out criteria. The measurement is based upon significant inputs not observable in the market. Significant increases or decreases in any of these inputs could result in a significantly higher or lower fair value measurement. Changes in the fair value of these contingent consideration obligations are recorded as income or expense within operating income in our consolidated statements of operations. See Note 11 for additional information on the valuation of our contingent consideration obligations. |
(2) | The fair value of the foreign exchange forward contracts was measured using readily observable market inputs, such as quotations on forward foreign exchange points and foreign interest rates. |
Changes in the fair value of our Level 3 contingent consideration obligations during the year ended December 31, 2012 were as follows (in thousands):
Fair value of contingent consideration obligations, January 1, 2012 | $ | 140,047 | ||
Acquisition date fair value of contingent consideration obligations recorded | 75,620 | |||
Foreign currency adjustments | 395 | |||
Payments | (33,211 | ) | ||
Present value accretion | 19,230 | |||
Adjustments, net (income) expense | (25,909 | ) | ||
|
| |||
Fair value of contingent consideration obligations, December 31, 2012 | $ | 176,172 | ||
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ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(7) Fair Value Measurements (Continued)
At December 31, 2012 and 2011, the carrying amounts of cash and cash equivalents, restricted cash, receivables, accounts payable and other current liabilities approximated their estimated fair values.
The carrying amount and estimated fair value of our long-term debt were $3.7 billion at December 31, 2012. The carrying amount and estimated fair value of our long-term debt were $3.3 billion at December 31, 2011. The estimated fair value of our long-term debt was determined using information derived from available market sources (Level 2 in the fair value hierarchy) and may not be representative of actual values that could have been or will be realized in the future.
(8) Capital Leases
The following is a schedule of the future minimum lease payments under capital leases, together with the present value of such payments as of December 31, 2012 (in thousands):
2013 | $ | 6,683 | ||
2014 | 5,096 | |||
2015 | 4,332 | |||
2016 | 1,944 | |||
2017 | 838 | |||
Thereafter | 708 | |||
|
| |||
Total future minimum lease payments | 19,601 | |||
Less: Imputed interest | — | |||
|
| |||
Present value of future minimum lease payments | 19,601 | |||
Less: Current portion | (6,684 | ) | ||
|
| |||
$ | 12,917 | |||
|
|
At December 31, 2012, the capitalized amounts of the building, machinery and equipment and computer equipment under capital leases were as follows (in thousands):
Machinery, laboratory equipment and tooling | $ | 33,096 | ||
Computer equipment | 633 | |||
Furniture and fixtures | 210 | |||
Vehicles | 39 | |||
Leasehold improvements | — | |||
|
| |||
33,978 | ||||
Less: Accumulated amortization | (4,351 | ) | ||
|
| |||
$ | 29,627 | |||
|
|
The amortization expense of assets recorded under capital leases is included in depreciation and amortization expense of property, plant and equipment.
(9) Postretirement Benefit Plans
(a) Employee Savings Plans
Our company and several of our U.S.-based subsidiaries sponsor various 401(k) savings plans, to which eligible domestic employees may voluntarily contribute a portion of their income, subject to
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(9) Postretirement Benefit Plans (Continued)
statutory limitations. In addition to the participants’ own contributions to these 401(k) savings plans, we match such contributions up to a designated level. Total matching contributions related to employee savings plans were $8.8 million, $7.6 million and $6.9 million in 2012, 2011 and 2010, respectively.
(b) U.K. Pension Plans
Changes in benefit obligations, plan assets, funded status and amounts recognized on the accompanying balance sheet as of and for the years ended December 31, 2012 and 2011, for our Defined Benefit Plan were as follows (in thousands):
2012 | 2011 | |||||||
Change in projected benefit obligation | ||||||||
Benefit obligation at beginning of year | $ | 14,966 | $ | 14,391 | ||||
Interest cost | 742 | 773 | ||||||
Actuarial loss | 2,211 | 274 | ||||||
Benefits paid | (417 | ) | (260 | ) | ||||
Foreign exchange impact | 838 | (212 | ) | |||||
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| |||||
Benefit obligation at end of year | $ | 18,340 | $ | 14,966 | ||||
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| |||||
Change in plan assets | ||||||||
Fair value of plan assets at beginning of year | $ | 11,272 | $ | 10,855 | ||||
Actual return on plan assets | 1,634 | (90 | ) | |||||
Employer contribution | 916 | 927 | ||||||
Benefits paid | (417 | ) | (260 | ) | ||||
Foreign exchange impact | 638 | (160 | ) | |||||
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| |||||
Fair value of plan assets at end of year | $ | 14,043 | $ | 11,272 | ||||
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| |||||
Funded status | $ | (4,297 | ) | $ | (3,694 | ) | ||
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| |||||
Accumulated benefit obligation | $ | 18,340 | $ | 14,966 | ||||
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The net amounts recognized in the accompanying consolidated balance sheets are shown in current liabilities and were $4.3 million and $3.7 million for the years ended December 31, 2012 and 2011, respectively.
The following represents the amounts recognized in other comprehensive income (loss) for the year ended December 31, 2012:
Amortization of net loss | (114 | ) | ||
Amortization of prior service cost | (422 | ) | ||
New actuarial gains | 1,212 | |||
Foreign exchange impact | 419 | |||
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| |||
Total | $ | 1,095 | ||
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|
The amortization of prior service cost is expected to be approximately $0.4 million in 2013.
Amounts recognized in accumulated other comprehensive income (loss) for the years ending December 31, 2012 and 2011 are as follows:
2012 | 2011 | |||||||
Net actuarial loss | $ | 4,098 | $ | 2,825 | ||||
Prior service costs | 4,754 | 4,932 | ||||||
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| |||||
Net amount recognized | $ | 8,852 | $ | 7,757 | ||||
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ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(9) Postretirement Benefit Plans (Continued)
The measurement dates used to determine plan assets and benefit obligations for the Defined Benefit Plan were December 31, 2012 and 2011.
The following table provides the weighted-average actuarial assumptions:
2012 | 2011 | |||||||
Assumptions used to determine benefit obligations(1): | ||||||||
Discount rate | 4.30 | % | 4.90 | % | ||||
Rate of compensation increase | 3.65 | % | 3.75 | % | ||||
Assumptions used to determine net periodic benefit cost(2): | ||||||||
Discount rate | 4.90 | % | 5.30 | % | ||||
Expected long-term return on plan assets | 5.40 | % | 6.40 | % | ||||
Rate of compensation increase | 3.75 | % | 4.15 | % |
(1) | The actuarial assumptions used to compute the unfunded status for the plan are based upon information available as of December 31, 2012 and 2011. |
(2) | The actuarial assumptions used to compute the net periodic pension benefit cost are based upon the information available as of the beginning of the presented year. |
The actuarial assumptions are reviewed on an annual basis. The overall expected long-term rate of return on plan assets assumption was determined based on historical investment return rates on portfolios with a high proportion of equity securities.
The annual cost of the Defined Benefit Plan is as follows (in thousands):
2012 | 2011 | 2010 | ||||||||||
Interest cost | $ | 742 | $ | 773 | $ | 717 | ||||||
Expected return on plan assets | (636 | ) | (731 | ) | (597 | ) | ||||||
Amortization of net loss | 114 | 32 | 20 | |||||||||
Amortization of prior service cost | 422 | 427 | — | |||||||||
Curtailment loss (gain) | — | — | — | |||||||||
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| |||||||
Net periodic benefit cost | $ | 642 | $ | 501 | $ | 140 | ||||||
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The plan assets of the Defined Benefit Plan comprise a mix of stocks and fixed income securities and other investments. At December 31, 2012, these stocks and fixed income securities represented 69% and 31%, respectively, of the market value of the pension assets. We expect to contribute approximately £0.6 million (or $0.9 million at December 31, 2012) to the Defined Benefit Plan in 2013. We expect that the benefits to be paid to plan participants will range between approximately $0.3 million and $0.4 million per year for each of the next five years and that benefits totaling $0.5 million will be paid annually for the five years thereafter.
Our overall investment strategy is to ensure the investments are spread across a range of investments varying by both investment class and geographical location which is achieved by investing largely in equity and fixed income funds. Spreading the investments in this manner reduces the risk of a decline in a particular market having a substantial impact on the whole fund. The target allocation for the plan assets is a 70% holding in equities (both in the U.K. and overseas), with the remaining assets invested in investment grade corporate bonds.
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ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(9) Postretirement Benefit Plans (Continued)
The fair values of our pension plan assets at December 31, 2012 and 2011 by asset category are presented in the following table (Level 2 in the fair value hierarchy).
Plan Assets at December 31, | ||||||||
Asset Category | 2012 | 2011 | ||||||
Equity securities: | ||||||||
U.K. equities | $ | 4,807 | $ | 3,805 | ||||
Overseas equities | 2,532 | 1,993 | ||||||
U.S. equities | 2,219 | 1,789 | ||||||
Debt securities — corporate bonds | 4,286 | 3,450 | ||||||
Other — cash | 198 | 235 | ||||||
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| |||||
Total plan assets | $ | 14,042 | $ | 11,272 | ||||
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The table above presents the fair value of our plan’s assets in accordance with the fair value hierarchy. The pension plan assets are measured using net asset value per share (or its equivalent) and are reported as a Level 2 investment above due to our ability to redeem the investment either at the balance sheet date or within limited time restrictions.
Unipath Limited, or Unipath, contributed $0.4 million in 2012, $0.3 million in 2011 and $0.4 million in 2010 to a Defined Contribution Plan, which was recognized as an expense in the accompanying consolidated statement of operations.
(10) Derivative Financial Instruments
We may manage our economic and transaction exposure to certain market-based risks through the use of derivative instruments. Our objective for holding derivative instruments has been to reduce volatility of net earnings and cash flows associated with changes in interest rates and foreign currency exchange rates. We do not hold or issue derivative financial instruments for speculative purposes.
(a) Interest Rate Risk
We used interest rate swap contracts from time to time in the management of our interest rate exposure related to our former secured credit facility. On June 30, 2011, we entered into a new secured credit facility and, in connection therewith, repaid in full all outstanding indebtedness under and terminated our former secured credit facility and related interest rate swaps.
(b) Foreign Currency Risk
In connection with our acquisition of Axis-Shield, we acquired a number of foreign currency forward contracts. The specific risk hedged in these contracts was the undiscounted foreign currency spot rate risk on forecasted foreign currency revenue. As of December 31, 2012, all of the acquired foreign currency forward contracts were settled. As of December 31, 2011, the notional value of these contracts was $16.6 million and CHF 5.4 million. We report the effective portion of the gain or loss on a cash flow hedge as a component of other comprehensive income, and it was subsequently reclassified into net earnings in the period in which the hedged transaction affected net earnings or the forecasted transaction was no longer probable of occurring.
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ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(10) Derivative Financial Instruments (Continued)
The following tables summarize the fair value of our derivative instruments and the effect of the derivative instruments on/in our accompanying consolidated balance sheets and consolidated statements of operations (in thousands):
Derivative Instruments | Balance Sheet Caption | Fair Value at December 31, 2012 | Fair Value at December 31, 2011 | |||||||
Foreign currency forward contracts | Accrued expenses and other current liabilities | $ | — | $ | 447 | |||||
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|
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| |||||||
Derivative Instruments | Location of Gain (Loss) Recognized in Income | Amount of Gain (Loss) Recognized During the Year Ended December 31, 2012 | Amount of Loss Recognized During the Year Ended December 31, 2011 | |||||||
Foreign currency forward contracts | Other comprehensive income (loss) | $ | — | $ | (1,187 | ) | ||||
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| |||||||
Total loss | Other comprehensive income (loss) | $ | — | $ | (1,187 | ) | ||||
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(11) Commitments and Contingencies
(a) Operating Leases
We have operating lease commitments for certain of our facilities and equipment that expire on various dates through 2019. The following schedule outlines future minimum annual rental payments under these leases at December 31, 2012 (in thousands):
2013 | $ | 43,148 | ||
2014 | 37,350 | |||
2015 | 32,943 | |||
2016 | 30,935 | |||
2017 | 27,449 | |||
Thereafter | 62,496 | |||
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| |||
$ | 234,321 | |||
|
|
Rent expense relating to operating leases was approximately $51.2 million, $42.3 million and $39.0 million during 2012, 2011 and 2010, respectively.
(b) Contingent Consideration Obligations
We determine the acquisition date fair value of the contingent consideration obligations based on a probability-weighted approach derived from the overall likelihood of achieving the targets before the corresponding delivery dates. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement, as defined in fair value measurement accounting. The resultant probability-weighted milestone payments are discounted using a discount rate based upon the weighted-average cost of capital. At each reporting date, we revalue the contingent consideration obligations to the reporting date fair values and record increases and decreases in the fair values as income or expense in our consolidated statements of operations.
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ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(11) Commitments and Contingencies (Continued)
Increases or decreases in the fair values of the contingent consideration obligations may result from changes in discount periods and rates, changes in the timing and amount of earn-out criteria and changes in probability assumptions with respect to the likelihood of achieving the various earn-out criteria.
We have contractual contingent consideration obligations related to our acquisitions of Accordant, AdnaGen, Alere Healthcare, Alere S.A., Amedica, Bioeasy, Branan, Capital Toxicology, DiagnosisOne, Diagnostik, eScreen, HCC, Immunalysis, Ionian, LDS, MedApps, Mologic, NationsHealth, ROAR, Standing Stone, Twist, Wellogic and certain other small businesses.
• | Accordant |
With respect to Accordant, the terms of the acquisition agreement require us to pay an earn-out upon successfully meeting certain revenue and cash collection targets starting after the second anniversary of the acquisition date and completed prior to the third anniversary date of the acquisition. The maximum amount of the earn-out totaling $6.0 million was achieved in 2012. A payment of $1.5 million was made during the fourth quarter of 2012 and the remaining payments will be made in quarterly installments of $1.5 million during 2013.
• | AdnaGen |
With respect to AdnaGen, the terms of the acquisition agreement require us to pay earn-outs upon successfully (i) meeting certain financial performance targets during the two years following the acquisition, (ii) achieving multiple product development milestones during the three years following the acquisition and (iii) creating pharmaceutical alliances during the six years following the acquisition. The maximum remaining amount of the earn-out payments is approximately $42.0 million.
• | Alere Healthcare |
With respect to Alere Healthcare, the terms of the acquisition agreement require us to pay an earn-out upon successfully meeting certain revenue and operating income targets during each of the calendar years 2010 through 2012. The 2012 portion of the earn-out totaling approximately $0.3 million was earned and accrued as of December 31, 2012. Payment of the 2012 earn-out is expected to be made during the second quarter of 2013.
• | Alere S.A. |
With respect to Alere S.A., the terms of the acquisition agreement require us to pay an earn-out upon successfully meeting certain revenue and EBITDA targets during each of the calendar years 2011 through 2016. The conditions of the 2012 and 2011 earn-outs were not achieved. The maximum remaining amount of the earn-out payments is approximately $6.0 million.
• | Amedica |
With respect to Amedica, the terms of the acquisition agreement require us to make earn-out payments upon successfully meeting certain financial targets during each of the calendar years 2012 and 2013. The 2012 portion of the earn-out totaling approximately $6.9 million was earned and accrued as of December 31, 2012. Payment of the 2012 earn-out is expected to be made during the second quarter of 2013. The maximum remaining amount of the earn-out payments is $8.1 million.
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ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(11) Commitments and Contingencies (Continued)
• | Bioeasy |
With respect to Bioeasy, the terms of the acquisition agreement require us to pay earn-outs upon successfully meeting certain revenue and EBITDA targets during each of the calendar years 2011 through 2013. The 2011 and 2012 earn-outs were not achieved. The maximum remaining amount of the earn-out payments is approximately $2.5 million.
• | Branan |
With respect to Branan, the terms of the acquisition agreement require us to pay earn-outs upon successfully achieving various regulatory product approval milestones by the second anniversary of the acquisition date. Four milestones were achieved during 2012 resulting in an accrual totaling approximately $2.0 million as of December 31, 2012. Payment of the 2012 milestones is expected to be made during the first quarter of 2013. The maximum remaining amount of the earn-out payments is $3.0 million.
• | Capital Toxicology |
The initial terms of the acquisition agreement for Capital Toxicology provided for an earn-out calculated based on the amount, if any, by which EBITDA derived from the acquired business exceeded specified targets during each of the calendar years 2011 and 2012. A portion of the earn-out for the 2011 calendar year totaling approximately $2.1 million was earned and accrued as of December 31, 2011. During the first quarter of 2012, the acquisition agreement was modified to base the earn-out on the excess of actual cash collections from 2011 sales over 2011 expenses rather than EBITDA. This new criterion resulted in an incremental $2.9 million accrual related to the earn-out for the 2011 calendar year based on cash collections through March 31, 2012. $4.1 million was paid in respect of the earn-out for the 2011 calendar year during the second quarter of 2012. An additional payment of approximately $1.5 million was made in the fourth quarter of 2012 for the incremental cash collections from 2011 sales received prior to August 31, 2012. The 2012 earn-out totaling $5.0 million was achieved in 2012 and paid in the fourth quarter of 2012. No further contingent consideration obligations related to this acquisition exist as of December 31, 2012.
• | DiagnosisOne |
With respect to DiagnosisOne, the terms of the acquisition agreement require us to pay earn-outs upon successfully meeting certain financial targets within five years of the acquisition date. The maximum amount of the earn-out payments is $33.0 million.
• | Diagnostik |
With respect to Diagnostik, the terms of the acquisition agreement require us to pay earn-outs upon successfully meeting certain financial targets within two years of the acquisition date. The maximum amount of the earn-out payments is approximately €1.4 million (approximately $1.9 million at December 31, 2012).
• | eScreen |
With respect to eScreen, the terms of the acquisition agreement require us to pay earn-outs upon successfully meeting certain financial targets during calendar years 2012 through 2014. The 2012 portion of the earn-out was not achieved. The maximum remaining amount of the earn-out payments is $70.0 million.
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ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(11) Commitments and Contingencies (Continued)
• | HCC |
With respect to HCC, the terms of the acquisition agreement require us to pay an earn-out upon successfully meeting certain EBITDA targets during calendar year 2013. The maximum amount of the earn-out payments is £3.5 million (approximately $5.7 million at December 31, 2012).
• | Immunalysis |
With respect to Immunalysis, the terms of the acquisition agreement require us to pay earn-outs upon successfully meeting certain gross profit targets during each of the calendar years 2010 through 2012. Payment of the 2011 portion of the earn-out totaling approximately $0.9 million was paid during the second quarter of 2012. The 2012 portion of the earn-out totaling approximately $1.9 million was earned and accrued as of December 31, 2012, with payment expected to be made during the second quarter of 2013.
Additionally, we have a contractual contingent obligation to pay up to a total of $3.0 million in compensation to certain executives of Immunalysis in accordance with the acquisition agreement that, if earned, will be paid out in connection with the contingent consideration payable to the former shareholders of Immunalysis, for each of the calendar years 2010, 2011 and 2012. Payment of the 2011 compensation totaling approximately $1.0 million was made during the second quarter of 2012. The 2012 portion of the compensation totaling approximately $1.0 million was earned and accrued as of December 31, 2012, with payment expected to be made during the second quarter of 2013.
• | Ionian |
With respect to our acquisition of Ionian, the terms of the acquisition agreement require us to pay earn-outs upon successfully meeting multiple product development milestones during the five years following the acquisition. The maximum amount of the earn-out payments is $57.5 million.
• | LDS |
With respect to LDS, the terms of the acquisition agreement require us to pay an earn-out upon successfully meeting certain revenue and operating income targets during each of the twelve-month periods ending June 30, 2012 and 2013. During the third quarter of 2012, the acquisition agreement was modified to base the earn-out criteria on: revenue and operating income targets for the twelve-month period ending June 30, 2012, certain integration milestones to be achieved during 2012, and various product milestones to be achieved during 2012 and 2013. The portion of the earn-out related to revenue and operating income targets, totaling $10.0 million was earned and paid during 2012. The portion of the earn-out related to the integration milestones and certain 2012 product milestones, totaling $3.5 million, was earned and accrued as of December 31, 2012. The maximum remaining amount of the earn-out payments is $7.5 million.
• | MedApps |
With respect to MedApps, the terms of the acquisition agreement require us to make earn-out payments upon achievement of certain technological and product development milestones through January 15, 2015. A portion of the earn-out, totaling $0.8 million was earned and paid during the fourth quarter of 2012. The maximum remaining amount of the earn-out payments is $21.2 million.
• | Mologic |
With respect to Mologic, the terms of the acquisition agreement require us to pay earn-outs, in shares of our common stock or cash, at our election, upon successfully meeting nine research and development project milestones during the five years following the acquisition. During 2012, a portion
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ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(11) Commitments and Contingencies (Continued)
of the earn-out totaling approximately $1.2 million was determined to have been achieved and was settled in shares of our common stock. The maximum remaining amount of the earn-out payments is $14.8 million.
• | NationsHealth |
With respect to NationsHealth, the terms of the acquisition agreement require us to pay an earn-out upon successfully meeting certain operational targets within one year of the acquisition date. The maximum amount of the earn-out payment is $8.0 million.
• | ROAR |
With respect to ROAR, the terms of the acquisition agreement require us to pay an earn-out upon successfully meeting certain EBITDA targets during 2012 through 2014. ROAR achieved approximately £1.2 million (approximately $1.9 million at December 31, 2012) of earn-out payments in 2012 which were accrued for at December 31, 2012. Payment of this earn-out is expected to be made in the first quarter of 2013. The maximum remaining amount of the earn-out payments is £9.3 million (approximately $15.2 million at December 31, 2012).
• | Standing Stone |
With respect to Standing Stone, the terms of the acquisition agreement require us to pay earn-outs and employee bonuses upon successfully meeting certain operational, product development and revenue targets during the period from the date of acquisition through calendar year 2013. An earn-out payment totaling approximately $8.2 million and employee bonus payments totaling approximately $0.4 million for the achievement of milestones were made during 2012. The maximum remaining amount of the earn-out payments is approximately $2.8 million. The maximum remaining amount of the employee bonuses is $0.1 million.
• | Twist |
With respect to our acquisition of Twist, the terms of the acquisition agreement require us to pay an earn-out upon successfully meeting certain revenue and product development targets. Approximately $0.3 million in earn-out payments was paid during 2012. The maximum amount of the earn-out payments is $125.0 million and, if earned, payments are expected to be made during the eight-year period following the acquisition date, but could extend thereafter.
• | Wellogic |
With respect to Wellogic, the terms of the acquisition agreement require us to pay an earn-out upon successfully meeting certain operational and profit targets during 2012 through 2019. The maximum remaining amount of the earn-out payments based upon operational targets is approximately $49.8 million. The earn-out based on financial targets has no maximum.
(c) Legal Proceedings
• | Matters Relating to our San Diego Facility |
On October 9, 2012, we received a warning letter from the FDA referencing inspectional observations set forth in an FDA Form 483 received in June 2012. The observations were the result of an inspection of our San Diego facility conducted earlier during 2012 relating to our Alere Triage
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ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(11) Commitments and Contingencies (Continued)
products, which resulted in two recalls of certain Alere Triage products and revised release specifications for our Alere Triage meter-based products. On October 30, 2012, we responded to the warning letter and submitted evidence of our completion of most of the actions previously detailed in our prior response to the FDA Form 483. We have worked cooperatively with the FDA in an effort to fully address each of the inspectional observations and intend to continue to do so.
In May 2012, we also received a subpoena from the Office of Inspector General of the Department of Health and Human Services, or the OIG, seeking documents relating primarily to the quality control testing and performance characteristics of Alere Triage products. We are cooperating with the OIG and continue to supply documents to the OIG under the subpoena.
We are unable to predict when these matters will be resolved or what further action, if any, the government will take in connection with them. Except for increases in manufacturing costs and decreased profitability for our Alere Triage products, we are unable to predict what impact, if any, these matters or ensuing proceedings, if any, will have on our financial condition, results of operations or cash flows.
• | Class Action Litigation against Alere Home Monitoring |
On January 24, 2013, a class action complaint was filed in the U.S. District Court for the Northern District of California against Alere Home Monitoring, or AHM, asserting claims for damages and other relief under California state law, including under California’s Confidentiality of Medical Information Act, relating to an inadvertent disclosure of personally identifiable information of approximately 116,000 patients resulting from the theft of a laptop computer from an employee of AHM. The Office of Civil Rights of the U.S. Department of Health and Human Services was notified of the inadvertent disclosure in accordance with the Breach Notification Rule under the HITECH Act, as were certain state agencies.
• | Claims in the Ordinary Course and Other Matters |
Because of the nature of our business, we may be subject at any particular time to lawsuits or other claims arising in the ordinary course of our business, and we expect that this will continue to be the case in the future. Such lawsuits often seek damages, sometimes in substantial amounts.
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ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(12) Net Loss Per Common Share
The following tables set forth the computation of basic and diluted net loss per common share (in thousands, except per share amounts):
2012 | 2011 | 2010 | ||||||||||
Basic and diluted net loss per common share: | ||||||||||||
Numerator: | ||||||||||||
Loss from continuing operations | $ | (78,182 | ) | $ | (133,542 | ) | $ | (1,028,707 | ) | |||
Preferred stock dividends | (21,293 | ) | (22,049 | ) | (24,235 | ) | ||||||
Preferred stock repurchase | — | 23,936 | — | |||||||||
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Loss available to common stockholders from continuing operations | (99,475 | ) | (131,655 | ) | (1,052,942 | ) | ||||||
Income from discontinued operations | — | — | 11,397 | |||||||||
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Net loss | $ | (99,475 | ) | $ | (131,655 | ) | $ | (1,041,545 | ) | |||
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Denominator: | ||||||||||||
Weighted-average shares outstanding —basic and diluted | 80,587 | 83,128 | 84,445 | |||||||||
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| |||||||
Loss per common share from continuing operations | $ | (1.23 | ) | $ | (1.58 | ) | $ | (12.47 | ) | |||
Income per common share from discontinued operations | — | — | 0.14 | |||||||||
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Net loss per common share | $ | (1.23 | ) | $ | (1.58 | ) | $ | (12.33 | ) | |||
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The following potential dilutive securities were not included in the calculation of diluted net loss per common share because the inclusion thereof would be antidilutive (in thousands):
2012 | 2011 | 2010 | ||||||||||
Denominator: | ||||||||||||
Options to purchase shares of common stock | 10,234 | 9,446 | 10,148 | |||||||||
Warrants | 4 | 162 | 242 | |||||||||
Conversion shares related to 3% convertible senior subordinated notes | 3,411 | 3,411 | 3,411 | |||||||||
Conversion shares related to subordinated convertible promissory notes | 27 | 27 | 27 | |||||||||
Conversion shares related to Series B convertible preferred stock | 10,239 | 10,239 | 12,063 | |||||||||
Common stock equivalents related to the settlement of deferred purchase price consideration | — | 142 | 306 | |||||||||
Common stock equivalents related to the settlement of a contingent consideration obligation | — | — | 28 | |||||||||
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Total number of antidilutive potentially issuable shares of common stock excluded from diluted common shares outstanding | 23,915 | 23,427 | 26,225 | |||||||||
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(13) Stockholders’ Equity
(a) Common Stock
As of December 31, 2012, we had 200.0 million shares of common stock, $0.001 par value, authorized, of which 7.7 million shares were held in treasury and 80.9 million shares were outstanding, 11.8 million shares were reserved for issuance upon grant and exercise of equity awards under current
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ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(13) Stockholders’ Equity (Continued)
equity compensation plans, 1.0 million shares were reserved for issuance under our employee stock purchase plan and 4,000 shares were reserved for issuance upon exercise of outstanding warrants. We also had shares of common stock reserved for issuance upon conversion of the following securities outstanding on December 31, 2012: $150.0 million in the aggregate principal amount of 3% convertible senior subordinated notes, convertible at $43.98 per share into 3.4 million shares of our common stock; $1.7 million of subordinated convertible promissory notes, convertible at $61.49 per share into 27,647 shares of our common stock; and 1.8 million shares of our Series B convertible preferred stock, with an aggregate liquidation preference of approximately $709.8 million, convertible under certain circumstances at $69.32 per share into 10.2 million shares of our common stock.
(b) Preferred Stock
As of December 31, 2012, we had 5.0 million shares of preferred stock, $0.001 par value, authorized, of which 2.3 million shares were designated as Series B Convertible Perpetual Preferred Stock, or Series B preferred stock. In connection with our acquisition of Matria, we issued shares of the Series B preferred stock and through June 30, 2011 paid all dividends on outstanding shares of Series B preferred stock in additional shares of Series B preferred stock. Subsequent to June 30, 2011 all dividends on outstanding shares of Series B preferred stock were paid in cash. At December 31, 2012, there were 1.8 million shares of Series B preferred stock outstanding with a fair value of approximately $328.5 million.
Each share of Series B preferred stock, which has a liquidation preference of $400.00 per share, is convertible, at the option of the holder and only upon certain circumstances, into 5.7703 shares of our common stock, plus cash in lieu of fractional shares. The initial conversion price is $69.32 per share, subject to adjustment upon the occurrence of certain events, but will not be adjusted for accumulated and unpaid dividends. Upon a conversion of shares of the Series B preferred stock, we may, at our option, satisfy the entire conversion obligation in cash or through a combination of cash and common stock. Series B preferred stock outstanding at December 31, 2012 would convert into 10.2 million shares of our common stock, which are reserved. There were no conversions as of December 31, 2012.
Generally, the shares of Series B preferred stock are convertible, at the option of the holder, if during any calendar quarter beginning with the second calendar quarter after the issuance date of the Series B preferred stock, if the closing sale price of our common stock for each of 20 or more trading days within any period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter exceeds 130% of the conversion price per share of common stock in effect on the last trading day of the immediately preceding calendar quarter. In addition, the shares of Series B preferred stock are convertible, at the option of the holder, in certain other circumstances, including those relating to the trading price of the Series B preferred stock and upon the occurrence of certain fundamental changes or major corporate transactions. We also have the right, under certain circumstances relating to the trading price of our common stock, to force conversion of the Series B preferred stock. Depending on the timing of any such forced conversion, we may have to make certain payments relating to foregone dividends, which payments we can make, at our option, in the form of cash, shares of our common stock, or a combination of cash and shares of our common stock.
Each share of Series B preferred stock accrues dividends at $12.00, or 3%, per annum, payable quarterly on January 15, April 15, July 15 and October 15 of each year, commencing following the first full calendar quarter after the issuance date. Dividends on the Series B preferred stock are cumulative
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ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(13) Stockholders’ Equity (Continued)
from the date of issuance. For the year ended December 31, 2012, Series B preferred stock dividends amounted to $21.3 million, which reduced earnings available to common stockholders for purposes of calculating net loss per common share in 2011 (Note 12). Accrued dividends are payable only if declared by our board of directors and, upon conversion by the Series B preferred stockholder, holders will not receive any cash payment representing accumulated dividends. If our board of directors declares a dividend payable, we have the right to pay the dividends in cash, shares of common stock, additional shares of Series B preferred stock or a similar convertible preferred stock or any combination thereof.
The holders of Series B preferred stock have liquidation preferences over the holders of our common stock and other classes of stock, if any, outstanding at the time of liquidation. Upon liquidation, the holders of outstanding Series B preferred stock would receive an amount equal to $400.00 per share of Series B preferred stock, plus any accumulated and unpaid dividends. As of December 31, 2012, the liquidation preference of the outstanding Series B preferred stock was $709.8 million. The holders of the Series B preferred stock have no voting rights, except with respect to matters affecting the Series B preferred stock (including the creation of a senior preferred stock).
We evaluated the terms and provisions of our Series B preferred stock to determine if it qualified for derivative accounting treatment. Based on our evaluation, these securities do not qualify for derivative accounting.
(c) Share Repurchases
During the first quarter of 2011, we repurchased in the open market and privately-negotiated transactions 183,000 shares of our Series B preferred stock, which were convertible into approximately 1.1 million shares of our common stock, at a cost of approximately $49.4 million, which we paid in cash. The repurchase of the preferred stock at an average cost of $269.84 per preferred share, an amount less than the weighted-average fair value of the preferred shares at issuance, resulted in the allocation of $13.7 million of income attributable to common stockholders. Also during the first quarter of 2011, and pursuant to the same repurchase program, we repurchased 16,700 shares of our common stock at a cost of approximately $0.6 million, which we paid in cash.
During the second quarter of 2011, we repurchased in the open market and privately-negotiated transactions, 174,788 shares of our Series B preferred stock, which were convertible into approximately 1.0 million shares of our common stock, at a cost of approximately $49.7 million, which we paid in cash. The repurchase of the preferred stock at an average cost of $284.28 per preferred share, an amount less than the weighted-average fair value of the preferred shares at issuance, resulted in the allocation of $10.2 million of income attributable to common stockholders. Also during the second quarter of 2011, and pursuant to the same repurchase program, we repurchased 8,300 shares of our common stock at a cost of approximately $0.3 million, which we paid in cash.
During the third quarter of 2011, we repurchased approximately 7.6 million shares of our common stock at a cost of approximately $183.9 million, which we paid in cash.
(d) Stock Options and Awards
In 2010, we adopted the Alere Inc. 2010 Stock Option and Incentive Plan, or the 2010 Plan, which replaced our 2001 Stock Option and Incentive Plan, or the 2001 Plan. The 2010 Plan currently allows
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ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(13) Stockholders’ Equity (Continued)
for the issuance of up to 5.2 million shares of common stock and other awards. The 2010 Plan is administered by the Compensation Committee of the Board of Directors, which selects the individuals eligible to receive awards, determines or modifies the terms and conditions of the awards granted, accelerates the vesting schedule of any award and generally administers and interprets the 2010 Plan. The 2010 Plan permits the granting of incentive and nonqualified stock options with terms of up to ten years and the granting of stock appreciation rights, restricted stock awards, unrestricted stock awards, performance share awards and dividend equivalent rights. The 2010 Plan also provides for option grants to non-employee directors and automatic vesting acceleration of all options and stock appreciation rights upon a change in control, as defined by the 2010 Plan. As of December 31, 2012 and 2011, there were 1.0 million and 1.1 million shares respectively, available for future grant under the 2010 Plan.
The following summarizes all stock option activity during the year ended December 31, 2012 (in thousands, except exercise price):
Options | Weighted- average Exercise Price | |||||||
Outstanding at January 1,2012 | 9,446 | $ | 36.84 | |||||
Granted | 2,314 | $ | 31.84 | |||||
Exercised | (297 | ) | $ | 18.79 | ||||
Canceled/expired/forfeited. | (813 | ) | $ | 33.80 | ||||
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Outstanding at December 31, 2012 | 10,650 | $ | 36.51 | |||||
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Exercisable at December 31, 2012 | 6,760 | $ | 38.66 | |||||
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The aggregate intrinsic value of the options outstanding at December 31, 2012 was $0.6 million. The aggregate intrinsic value of the options exercisable at December 31, 2012 was $0.6 million. The aggregate intrinsic value of stock options exercised during 2012, 2011 and 2010 was $1.3 million, $17.1 million, and $6.9 million, respectively.
In addition, on December 30, 2012, we granted a restricted stock unit, or RSU, award to one of our executive employees in the amount of 110,000 units. The RSU award vests over a three-year period, however, if the executive’s employment is involuntarily terminated, without cause, within three years, the RSU award will accelerate and fully vest. The RSU award will also accelerate and fully vest if the executive terminates his employment voluntarily after one year, other than in the presence of facts or circumstances which would constitute cause for termination by us. The fair value of the RSU award is $18.37 per unit, calculated based on the closing market price of our common stock on the date of grant. The aggregate fair value of the RSU award is expensed on a straight-line basis over the recipient’s service requirement completion period of one year. None of the units underlying the RSU award have vested or have been released as of December 31, 2012.
Based on equity awards outstanding as of December 31, 2012, there was $29.6 million of unrecognized compensation costs related to unvested share-based compensation arrangements that are expected to vest. Such costs are expected to be recognized over a weighted-average period of 1.91 years.
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ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(13) Stockholders’ Equity (Continued)
(e) Warrants
The following is a summary of all warrant activity during the three years ended December 31:
Number of Shares | Exercise Price | Weighted- average Exercise Price | ||||||||||
(in thousands) | ||||||||||||
Warrants outstanding and exercisable, December 31, 2009 | 461 | $ | 3.81 - $50.00 | $ | 21.09 | |||||||
Exercised | (105 | ) | $ | 3.81 - $29.78 | $ | 23.66 | ||||||
Cancelled | (113 | ) | $ | 20.06 - $29.78 | $ | 29.62 | ||||||
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Warrants outstanding and exercisable, December 31, 2010 | 243 | $ | 13.54 - $50.00 | $ | 16.00 | |||||||
Exercised | (81 | ) | $ | 13.54 - $24.00 | $ | 19.15 | ||||||
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Warrants outstanding and exercisable, December 31, 2011 | 162 | $ | 13.54 - $50.00 | $ | 14.44 | |||||||
Exercised | (158 | ) | $ | 13.54 | $ | 13.54 | ||||||
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Warrants outstanding and exercisable, December 31, 2012 | 4 | $ | 50.00 | $ | 50.00 | |||||||
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The following table presents additional information related to warrants outstanding and exercisable at December 31, 2012:
Outstanding and Exercisable | ||||||||||||
Exercise Price | Number of Shares | Weighted- average Remaining Contract Life | Weighted- average Exercise Price | |||||||||
(in thousands) | ||||||||||||
$50.00 | 4 | 3.50 | $ | 50.00 | ||||||||
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4 | 3.50 | $ | 50.00 | |||||||||
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The warrants included in the table above were issued in connection with the acquisition of GeneCare. There were no warrants to purchase shares of our common stock outstanding that were issued to officers and directors of our company or entities controlled by these officers and directors at December 31, 2012. All outstanding warrants have been classified in equity.
(f) Employee Stock Purchase Plan
In 2001, we adopted the 2001 Employee Stock Purchase Plan, under which eligible employees are allowed to purchase shares of our common stock at a discount through periodic payroll deductions. Purchases may occur at the end of every six-month offering period at a purchase price equal to 85% of the market value of our common stock at either the beginning or end of the offering period, whichever is lower. We may issue up to 3.0 million shares of common stock under this plan. At December 31, 2012, 2.0 million shares had been issued under this plan.
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ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(14) Stock-based Compensation
We recorded stock-based compensation expense in our consolidated statements of operations for the years ended December 31, 2012, 2011 and 2010, respectively, as follows (in thousands):
2012 | 2011 | 2010 | ||||||||||
Cost of net revenue | $ | 1,063 | $ | 1,508 | $ | 1,904 | ||||||
Research and development | 3,150 | 3,862 | 7,087 | |||||||||
Sales and marketing | 3,464 | 4,267 | 4,161 | |||||||||
General and administrative | 7,988 | 11,578 | 16,727 | |||||||||
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15,665 | 21,215 | 29,879 | ||||||||||
Benefit for income taxes | (2,660 | ) | (4,560 | ) | (6,203 | ) | ||||||
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Stock-based compensation, net of tax | $ | 13,005 | $ | 16,655 | $ | 23,676 | ||||||
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For the years ended December 31, 2012, 2011 and 2010, the presentation of our cash flows reports the excess tax benefits from the exercise of stock options as financing cash flows. For the years ended December 31, 2012, 2011 and 2010, excess tax benefits generated from option exercises amounted to $0.5 million, $3.4 million and $1.7 million, respectively.
The following assumptions were used to estimate the fair value of options granted during the years ended December 31, 2012, 2011 and 2010, using a Black-Scholes option-pricing model:
2012 | 2011 | 2010 | ||||||||||
Risk-free interest rate | 0.83 | % | 1.31 | % | 2.03 | % | ||||||
Expected dividend yield | — | — | — | |||||||||
Expected life | 5.60 years | 5.46 years | 5.34 years | |||||||||
Expected volatility | 42 | % | 43 | % | 42 | % |
The weighted-average fair value under a Black-Scholes option pricing model of options granted to employees during 2012, 2011 and 2010 was $7.37, $10.95 and $13.54 per share, respectively. All options granted during these periods were granted at or above the fair market value on the date of grant.
For the year ended December 31, 2012, we recorded compensation expense of $2.7 million related to our Employee Stock Purchase Plan. The fair value of the option component of the Employee Stock Purchase Plan shares was estimated at the date of grant using a Black-Scholes option pricing model and assumed an expected volatility of 44% and 47%, a risk-free interest rate of 0.06% and 0.15% and an expected life of 182 days and 184 days, for each of the two respective offering periods. In the first half of 2012 we had a second offering period to accommodate employees of a recent acquisition. The fair value of the option component of the Employee Stock Purchase Plans shares for this offering was estimated at the grant date of March 1, 2012 using a Black-Scholes option pricing model and assumed an expected volatility of 40%, a risk-free rate of 0.10%, and an expected life of 122 days. The 2012 charge is included in the employee’s respective cost classification in the table above.
For the year ended December 31, 2011, we recorded compensation expense of $2.5 million related to our Employee Stock Purchase Plan. The fair value of the option component of the Employee Stock Purchase Plan shares was estimated at the date of grant using a Black-Scholes option pricing model and assumed an expected volatility of 35% and 34%, a risk-free interest rate of 0.19% and 0.10% and an expected life of 181 days and 184 days, for each of the two respective offering periods. The 2011 charge is included in the employee’s respective cost classification in the table above.
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Table of Contents
ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(14) Stock-based Compensation (Continued)
For the year ended December 31, 2010, we recorded compensation expense of $2.7 million related to our Employee Stock Purchase Plan. The fair value of the option component of the Employee Stock Purchase Plan shares was estimated at the date of grant using a Black-Scholes option pricing model and assumed an expected volatility of 39% and 45%, a risk-free interest rate of 0.18% and 0.22% and an expected life of 181 days and 184 days, for each of the two respective offering periods. The 2010 charge is included in general and administrative expense in the table above.
(15) Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) consisted of the following (in thousands):
Cumulative Translation Adjustment (Note 2(b)) | Pension Liability Adjustment (Note 9(b)) | Other(1) | Accumulated Other Comprehensive Income (Loss) | |||||||||||||
Balance at December 31, 2009 | $ | 12,915 | $ | (5,096 | ) | $ | (10,273 | ) | $ | (2,454 | ) | |||||
Period change | (210 | ) | (113 | ) | 3,467 | 3,144 | ||||||||||
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Balance at December 31, 2010 | 12,705 | (5,209 | ) | (6,806 | ) | 690 | ||||||||||
Period change | (35,830 | ) | (1,618 | ) | 6,488 | (30,960 | ) | |||||||||
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Balance at December 31, 2011 | (23,125 | ) | (6,827 | ) | (318 | ) | (30,270 | ) | ||||||||
Period change | 54,642 | (756 | ) | 258 | 54,144 | |||||||||||
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Balance at December 31, 2012 | $ | 31,517 | $ | (7,583 | ) | $ | (60 | ) | $ | 23,874 | ||||||
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(1) | Other represents unrealized gains (losses) on available-for-sale securities and hedging instruments. |
(16) Income Taxes
Income (loss) before provision (benefit) for income taxes consists of the following (in thousands):
Continuing Operations:
2012 | 2011 | 2010 | ||||||||||
United States | $ | (158,635 | ) | $ | (493,073 | ) | $ | (1,078,981 | ) | |||
Foreign | 37,164 | 327,026 | 11,195 | |||||||||
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$ | (121,471 | ) | $ | (166,047 | ) | $ | (1,067,786 | ) | ||||
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Discontinued Operations:
2012 | 2011 | 2010 | ||||||||||
United States | $ | — | $ | — | $ | 16,973 | ||||||
Foreign | — | — | 1,514 | |||||||||
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$ | — | $ | — | $ | 18,487 | |||||||
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F-59
Table of Contents
ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(16) Income Taxes (Continued)
Our primary temporary differences that give rise to the deferred tax asset and liability are net operating loss, or NOL, carryforwards, nondeductible reserves, and accruals and differences in basis of the tangible and intangible assets. The income tax effects of these temporary differences are as follows (in thousands):
2012 | 2011 | |||||||
NOL and capital loss carryforwards | $ | 117,091 | $ | 161,312 | ||||
Tax credit carryforwards | 54,212 | 42,806 | ||||||
Nondeductible reserves | 17,036 | 17,084 | ||||||
Nondeductible accruals | 34,406 | 32,272 | ||||||
Difference between book and tax bases of tangible assets | 1,059 | 159 | ||||||
Difference between book and tax bases of intangible assets | 23,017 | 19,417 | ||||||
Deferred revenue | 5,686 | 6,098 | ||||||
All other | 30,071 | 27,113 | ||||||
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Gross deferred tax asset | 282,578 | 306,261 | ||||||
Less: Valuation allowance | (68,555 | ) | (51,579 | ) | ||||
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Total deferred tax assets | 214,023 | 254,682 | ||||||
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Deferred tax liabilities: | ||||||||
Difference between book and tax bases of tangible assets | 42,835 | 52,303 | ||||||
Difference between book and tax bases of intangible assets | 482,955 | 468,851 | ||||||
Debt | 25,541 | 47,940 | ||||||
Other | 15,525 | 15,173 | ||||||
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Total deferred tax liability | 566,856 | 584,267 | ||||||
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Net deferred tax liability | $ | 352,833 | $ | 329,585 | ||||
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Reported as: | ||||||||
Deferred tax assets, current portion | $ | 67,722 | $ | 42,975 | ||||
Deferred tax assets, long-term | 8,293 | 10,394 | ||||||
Deferred tax liabilities, current portion | (660 | ) | (2,254 | ) | ||||
Deferred tax liabilities, long-term | (428,188 | ) | (380,700 | ) | ||||
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Net deferred tax liability | $ | (352,833 | ) | $ | (329,585 | ) | ||
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As of December 31, 2012, we had approximately $60.6 million of domestic NOL and domestic capital loss carryforwards, approximately $981.1 million of state NOL carryforwards and $211.6 million of foreign NOL and foreign capital loss carryforwards, which either expire on various dates through 2032 or can be carried forward indefinitely. As of December 31, 2012, we had approximately $57.7 million of domestic research and development, foreign tax and alternative minimum tax credits which either expire on various dates through 2031 or can be carried forward indefinitely. These loss carryforwards and tax credits may be available to reduce future federal, state and foreign taxable income, if any, and are subject to review and possible adjustment by the appropriate tax authorities. Section 382 imposes an annual limitation on the use of these losses to an amount equal to the value of the company at the time of the ownership change multiplied by the long-term tax exempt rate. Our domestic NOLs are subject to various Internal Revenue Service, or IRS, Code Section 382 limitations, however we forecast we will fully utilize the NOLs before their expiration. Section 383 imposes an annual limitation on the use of credits to an amount equal to the value of the company at the time of the ownership change multiplied by the long-term tax exempt rate. Our domestic credits are subject to various Internal Revenue Service, or IRS, Code Section 383 limitations. We forecast that some portion of these credits will expire before they are utilized and therefore has recorded a valuation allowance on these assets of $0.9 million. The state NOL carryforwards are subject to various statutory limitations or require certain companies to realize taxable income in order to fully utilize the NOLs.
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Table of Contents
ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(16) Income Taxes (Continued)
We have recorded a valuation allowance of $68.6 million as of December 31, 2012 due to uncertainties related to the future benefits, if any, from our deferred tax assets related primarily to our foreign businesses and certain U.S. net operating losses and tax credits. This is an increase of $17.0 million from the valuation allowance of $51.6 million as of December 31, 2011. The increase is primarily related to foreign and state NOLs. The valuation allowance is based on our estimates of taxable income by the jurisdictions in which we operate and the period over which our deferred tax assets will be recoverable. In the event that actual results differ from these estimates or we adjust these estimates in future periods, we may need to establish an additional valuation allowance or reduce our current valuation allowance, which could materially impact our tax provision.
Our two China-based manufacturing subsidiaries qualify for a reduced income tax rate in 2012, 2011 and 2010. Both Chinese entities qualify as high technology status companies and the status is due to expire for one in 2013 and the other in 2014. The companies intend to file for a renewal of this status. The prescribed statutory rate for 2012 and 2011 is 25% and the reduced rate under the high technology status is 15%. In 2010, the companies qualified under the China Tax Reform Act and the income tax rate for one of the subsidiaries was 12.5% and 11% for the other. The reduced tax rate produced a tax expense of approximately $1.0 million in 2012. In the absence of the reduced tax rate for 2012 a tax rate of 25% would have applied and would have resulted in a tax expense of approximately $1.7 million in 2012. The earnings per common share effect of the reduced tax rate is $0.01 for 2012. The reduced tax rate produced a tax expense of approximately $0.5 million in 2011. In the absence of the reduced tax rate for 2011 a tax rate of 25% would have applied and would have resulted in a tax expense of approximately $0.8 million in 2011. The earnings per common share effect of the reduced tax rate was $0.01 for 2011. The reduced tax rate produced a tax expense of approximately $1.3 million in 2010. In the absence of the reduced tax rate for 2010 a tax rate of 25% would have applied and would have resulted in a tax expense of approximately $2.9 million in 2010. The earnings per common share effect of the reduced tax rate is $0.02 for 2010.
The estimated amount of undistributed earnings of our foreign subsidiaries is $654.2 million at December 31, 2012. No amount for U.S. income tax has been provided on undistributed earnings of our foreign subsidiaries because we consider such earnings to be indefinitely reinvested. In the event of distribution of those earnings we would be subject to both U.S. income tax and foreign withholding taxes, subject to possible offset by U.S. foreign tax credits. Determination of the amount of U.S. income tax liability that would be incurred is not practicable because of the complexities associated with this hypothetical calculation.
The following table presents the components of our benefit for income taxes (in thousands) for continuing operations:
2012 | 2011 | 2010 | ||||||||||
Current: | ||||||||||||
Federal | $ | 11,794 | $ | (1,229 | ) | $ | (2,350 | ) | ||||
State | 9,500 | 4,193 | 5,285 | |||||||||
Foreign | 32,955 | 29,583 | 41,552 | |||||||||
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54,249 | 32,547 | 44,487 | ||||||||||
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Deferred: | ||||||||||||
Federal | (58,292 | ) | (27,109 | ) | (40,154 | ) | ||||||
State | (15,087 | ) | (23,720 | ) | (12,695 | ) | ||||||
Foreign | (11,189 | ) | (5,932 | ) | (21,569 | ) | ||||||
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(84,568 | ) | (56,761 | ) | (74,418 | ) | |||||||
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Total benefit for income taxes | $ | (30,319 | ) | $ | (24,214 | ) | $ | (29,931 | ) | |||
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Table of Contents
ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(16) Income Taxes (Continued)
Benefit for income taxes in 2011 includes a benefit of $7.0 million to correct items related to periods between 2007 and 2010. We do not believe that the corrected items are material to 2011 or any previously reported quarterly or annual financial statements. As a result, we have not restated our previously issued annual or quarterly financial statements.
The following table presents the components of our provision for income taxes (in thousands) for discontinued operations:
2012 | 2011 | 2010 | ||||||||||
Current: | ||||||||||||
Federal | $ | — | $ | — | $ | — | ||||||
State | — | — | (73 | ) | ||||||||
Foreign | — | — | — | |||||||||
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— | — | (73 | ) | |||||||||
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Deferred: | ||||||||||||
Federal | $ | — | $ | — | 5,644 | |||||||
State | — | — | 1,095 | |||||||||
Foreign | — | — | 424 | |||||||||
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— | — | 7,163 | ||||||||||
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Total provision for income taxes | $ | — | $ | — | $ | 7,090 | ||||||
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The following table presents a reconciliation from the U.S. statutory tax rate to our effective tax rate:
2012 | 2011 | 2010 | ||||||||||
Statutory rate | 35 | % | 35 | % | 35 | % | ||||||
Effect of goodwill impairment charge | — | (75 | ) | (31 | ) | |||||||
Stock-based compensation | (2 | ) | (2 | ) | — | |||||||
Rate differential on foreign earnings | (2 | ) | 42 | — | ||||||||
Research and development | — | 1 | — | |||||||||
State income taxes, net of federal benefit | 3 | 8 | 1 | |||||||||
Acquisition costs | (2 | ) | (2 | ) | (2 | ) | ||||||
Contingent consideration | 6 | 4 | — | |||||||||
Rate changes | (2 | ) | 3 | — | ||||||||
Other permanent items | 1 | 3 | — | |||||||||
Change in valuation allowance | (9 | ) | (2 | ) | — | |||||||
Uncertain tax positions | (3 | ) | — | — | ||||||||
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Effective tax rate | 25 | % | 15 | % | 3 | % | ||||||
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The goodwill impairment charge created a deferred tax impact due to the existence of goodwill deductible for tax purposes. The deferred tax is calculated based on a methodology which allocates the goodwill impairment loss proportionally to the goodwill deductible for tax purposes compared to total goodwill. The goodwill impairment allocated to goodwill deductible for tax purposes created a deferred tax asset of $35.3 million as of December 31, 2011. There has been no change to the goodwill impairment charge or the deferred tax asset in 2012.
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ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(16) Income Taxes (Continued)
During the year ended December 31, 2012, we increased the liability for income taxes associated with uncertain tax positions by $3.2 million to a total of $19.0 million at December 31, 2012. The primary reasons for the increase are foreign tax exposures associated with certain restructurings which increased the liability for income taxes associated with uncertain tax positions by $4.8 million and decreased that liability by $1.5 million primarily related to the reversal of domestic reserves no longer required due to audit settlements. We classify $12.6 million of income tax liabilities as non-current income tax liabilities, $0.9 million as income taxes payable and $5.5 million of income tax liabilities as reserves net of long-term deferred tax assets which is not anticipated to be paid within one year of the balance sheet date. These non-current income tax liabilities are recorded in other long-term liabilities in our consolidated balance sheet at December 31, 2012. We anticipate an increase every quarter to the total amount of unrecognized tax benefits. We do not anticipate a significant increase or decrease of the total amount of unrecognized tax benefits within twelve months of the reporting date.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
Amount | ||||
Balances as of January 1, 2010 | $ | 4,905 | ||
Additions for tax positions in current and prior year acquisitions | 2,070 | |||
Additions for tax positions taken during current year | 263 | |||
Expiration of statutes of limitations or closure of tax audits | (1,078 | ) | ||
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| |||
Balances as of December 31, 2010 | 6,160 | |||
Additions for tax positions in current and prior year acquisitions | 189 | |||
Additions for tax positions taken during current year | 5,814 | |||
Reductions for tax positions taken during prior years | (26 | ) | ||
Reductions for tax positions in current and prior year acquisitions | (1,922 | ) | ||
Expiration of statutes of limitations or closure of tax audits | (684 | ) | ||
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| |||
Balance as of December 31, 2011 | 9,531 | |||
Previously recorded tax reserves not included in disclosure | 6,236 | |||
Additions for tax positions in current and prior year acquisitions | 1,852 | |||
Additions for tax positions taken during current year | 2,922 | |||
Reductions for tax positions taken during prior years | (208 | ) | ||
Reductions for tax positions in current and prior year acquisitions | — | |||
Expiration of statutes of limitations or closure of tax audits | (1,328 | ) | ||
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| |||
Balance as of December 31, 2012 | $ | 19,005 | ||
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Interest and penalties related to income tax liabilities are included in income tax expense. The interest and penalties recorded in 2012 amounted to $0.5 million of income due to a reduction in the required accrual for interest. The balance of accrued interest and penalties recorded on the consolidated balance sheet at December 31, 2012 was $0.4 million.
With limited exceptions, we are subject to U.S. federal, state and local or non-U.S. income tax audits by tax authorities for 2006 through 2011. We are currently under income tax examination by the IRS and a number of state and foreign tax authorities and anticipate these audits will be completed by the end of 2013. We cannot currently estimate the impact of these audits due to the uncertainties associated with tax examinations.
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ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(17) Financial Information by Segment
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. Our chief operating decision-making group is composed of the chief executive officer and members of senior management. Our reportable operating segments are professional diagnostics, health information solutions, consumer diagnostics and corporate and other. Our operating results include license and royalty revenue which are allocated to Professional Diagnostics and Consumer Diagnostics on the basis of the original license or royalty agreement.
On January 15, 2010, we completed the sale of our vitamins and nutritional supplements business (Note 22). The sale included our private label and branded nutritionals businesses and represents the complete divestiture of our entire vitamins and nutritional supplements business segment. The results of the entire vitamins and nutritional supplements business are included in income from discontinued operations, net of tax, in our consolidated financial statements.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. We evaluate performance of our operating segments based on revenue and operating income (loss). Revenues are attributed to geographic areas based on where the customer is located. Segment information for 2012, 2011 and 2010 is as follows (in thousands):
2012 | Professional Diagnostics | Health Information Solutions | Consumer Diagnostics | Corporate and Other | Total | |||||||||||||||
Net revenue | $ | 2,189,892 | $ | 535,422 | $ | 93,511 | $ | — | $ | 2,818,825 | ||||||||||
Operating income (loss) | $ | 243,080 | $ | (73,432 | ) | $ | 12,707 | $ | (73,223 | ) | $ | 109,132 | ||||||||
Depreciation and amortization | $ | 355,957 | $ | 96,427 | $ | 3,455 | $ | 1,008 | $ | 456,847 | ||||||||||
Restructuring charge | $ | 11,124 | $ | 9,203 | $ | — | $ | (2 | ) | $ | 20,325 | |||||||||
Stock-based compensation | $ | — | $ | — | $ | — | $ | 15,665 | $ | 15,665 | ||||||||||
Assets | $ | 6,214,847 | $ | 593,172 | $ | 192,748 | $ | 67,161 | $ | 7,067,928 | ||||||||||
Expenditures for property, plant and equipment | $ | 100,147 | $ | 41,775 | $ | 2,823 | $ | 1,201 | $ | 145,946 |
2011 | Professional Diagnostics | Health Information Solutions | Consumer Diagnostics | Corporate and Other | Total | |||||||||||||||
Net revenue | $ | 1,756,509 | $ | 534,514 | $ | 95,504 | $ | — | $ | 2,386,527 | ||||||||||
Operating income (loss) | $ | 248,097 | $ | (439,872 | ) | $ | 10,442 | $ | (71,522 | ) | $ | (252,855 | ) | |||||||
Goodwill impairment charge | $ | — | $ | 383,612 | $ | — | $ | — | $ | 383,612 | ||||||||||
Depreciation and amortization | $ | 283,112 | $ | 108,383 | $ | 5,375 | $ | 716 | $ | 397,586 | ||||||||||
Restructuring charge | $ | 13,949 | $ | 13,194 | $ | (57 | ) | $ | 1,196 | $ | 28,282 | |||||||||
Stock-based compensation | $ | — | $ | — | $ | — | $ | 21,215 | $ | 21,215 | ||||||||||
Assets | $ | 5,826,756 | $ | 624,305 | $ | 199,422 | $ | 22,218 | $ | 6,672,701 | ||||||||||
Expenditures for property, plant and equipment | $ | 81,774 | $ | 46,850 | $ | 2,676 | $ | 1,232 | $ | 132,532 |
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ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(17) Financial Information by Segment (Continued)
2010 | Professional Diagnostics | Health Information Solutions | Consumer Diagnostics | Corporate and Other | Total | |||||||||||||||
Net revenue | $ | 1,459,492 | $ | 598,819 | $ | 97,036 | $ | — | $ | 2,155,347 | ||||||||||
Operating income (loss) | $ | 134,687 | $ | (1,024,809 | ) | $ | 11,310 | $ | (72,277 | ) | $ | (951,089 | ) | |||||||
Goodwill impairment charge | $ | — | $ | 1,006,357 | $ | — | $ | — | $ | 1,006,357 | ||||||||||
Depreciation and amortization | $ | 246,080 | $ | 120,617 | $ | 5,439 | $ | 654 | $ | 372,790 | ||||||||||
Restructuring charge | $ | 7,941 | $ | 7,249 | $ | 77 | $ | — | $ | 15,267 | ||||||||||
Stock-based compensation | $ | — | $ | — | $ | — | $ | 29,879 | $ | 29,879 | ||||||||||
Assets | $ | 4,913,491 | $ | 1,011,183 | $ | 207,795 | $ | 197,905 | $ | 6,330,374 | ||||||||||
Expenditures for property, plant and equipment | $ | 43,364 | $ | 48,410 | $ | 4,314 | $ | 153 | $ | 96,241 |
The following tables summarize our net revenue from the professional diagnostics and health information solutions reporting segments by groups of similar products and services for 2012, 2011 and 2010 (in thousands):
Professional Diagnostics Segment
2012 | 2011 | 2010 | ||||||||||
Cardiology | $ | 503,534 | $ | 518,746 | $ | 488,497 | ||||||
Infectious disease | 615,950 | 564,983 | 437,709 | |||||||||
Toxicology | 587,261 | 387,209 | 300,125 | |||||||||
Diabetes | 144,441 | 14,960 | — | |||||||||
Other | 314,030 | 250,274 | 214,387 | |||||||||
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Net product sales and services revenue | 2,165,216 | 1,736,172 | 1,440,718 | |||||||||
License and royalty revenue | 24,676 | 20,337 | 18,774 | |||||||||
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Professional diagnostics net revenue | $ | 2,189,892 | $ | 1,756,509 | $ | 1,459,492 | ||||||
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Health Information Solutions Segment
2012 | 2011 | 2010 | ||||||||||
Disease and case management | $ | 218,378 | $ | 237,938 | $ | 281,563 | ||||||
Women’s & children’s health | 120,259 | 114,287 | 126,910 | |||||||||
Wellness | 104,634 | 104,868 | 103,343 | |||||||||
Patient self-testing services | 92,151 | 77,421 | 87,003 | |||||||||
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Health information solutions net revenue | $ | 535,422 | $ | 534,514 | $ | 598,819 | ||||||
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The following tables summarize our net revenue by geographic area for 2012, 2011 and 2010, respectively, and our long-lived tangible assets by geographic area as of December 31, 2012 and 2011, respectively (in thousands):
2012 | 2011 | 2010 | ||||||||||
Revenue by Geographic Area: | ||||||||||||
United States | $ | 1,724,704 | $ | 1,453,160 | $ | 1,380,314 | ||||||
Europe | 483,857 | 396,480 | 361,810 | |||||||||
Elsewhere | 610,264 | 536,887 | 413,223 | |||||||||
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$ | 2,818,825 | $ | 2,386,527 | $ | 2,155,347 | |||||||
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ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(17) Financial Information by Segment (Continued)
December 31, | ||||||||
2012 | 2011 | |||||||
Long-lived Tangible Assets by Geographic Area: | ||||||||
United States | $ | 295,786 | $ | 290,708 | ||||
United Kingdom | 37,928 | 27,515 | ||||||
China | 31,277 | 29,563 | ||||||
Elsewhere | 169,478 | 143,419 | ||||||
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$ | 534,469 | $ | 491,205 | |||||
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(18) Related Party Transactions
In November 2008, the Zwanziger Family Trust, a trust established for the benefit of the children of Ron Zwanziger, our Chairman, Chief Executive Officer and President, and the trustee of which is Mr. Zwanziger’s sister, purchased certain of our securities from third parties in market transactions. The purchase consisted of approximately $1.0 million of each of the following of our outstanding securities: our common stock, our Series B Preferred Stock and our convertible notes. To the extent we make principal and interest payments under the convertible notes in accordance with their terms, the Zwanziger Family Trust, as a holder of convertible notes, will receive its proportionate share.
In May 2007, we completed the formation of SPD, our 50/50 joint venture with P&G, for the development, manufacturing, marketing and sale of existing and to-be-developed consumer diagnostic products, outside the cardiology, diabetes and oral care fields. Upon completion of the arrangement to form the joint venture, we ceased to consolidate the operating results of our consumer diagnostic products business related to the joint venture and instead account for our 50% interest in the results of the joint venture under the equity method of accounting.
At December 31, 2012 and 2011, we had a net receivable from the joint venture of $2.3 million and $2.5 million, respectively. Included in the $2.3 million receivable balance as of December 31, 2012 is approximately $1.6 million of costs incurred in connection with our 2008 SPD-related restructuring plans. Included in the $2.5 million receivable balance as of December 31, 2011 is approximately $1.5 million of costs incurred in connection with our 2008 SPD-related restructuring plans. We have also recorded a long-term receivable totaling approximately $14.6 million and $15.5 million as of December 31, 2012 and December 31, 2011, respectively, related to the 2008 SPD-related restructuring plans. Additionally, customer receivables associated with revenue earned after the formation of the joint venture was completed have been classified as other receivables within prepaid expenses and other current assets on our accompanying consolidated balance sheets in the amount of $6.9 million and $7.3 million as of December 31, 2012 and 2011, respectively. In connection with the joint venture arrangement, the joint venture bears the collection risk associated with these receivables. Sales to the joint venture under our manufacturing agreement totaled $63.6 million, $71.2 million and $68.1 million during the years ended December 31, 2012, 2011 and 2010, respectively. Additionally, services revenue generated pursuant to the long-term services agreement with the joint venture totaled $1.1 million, $1.1 million and $1.2 million during the years ended December 31, 2012, 2011 and 2010, respectively. Sales under our manufacturing agreement and long-term services agreement are included in net product sales and services revenue, respectively, in our accompanying consolidated statements of operations.
Under the terms of our product supply agreement, SPD purchases products from our manufacturing facilities in the U.K. and China. SPD in turn sells a portion of those tests back to us for
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ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(18) Related Party Transactions (Continued)
final assembly and packaging. Once packaged, the tests are sold to P&G for distribution to third-party customers in North America. As a result of these related transactions, we have recorded $7.3 million and $8.9 million of trade receivables which are included in accounts receivable on our accompanying consolidated balance sheets as of December 31, 2012 and 2011, respectively, and $21.3 million and $19.3 million of trade accounts payable which are included in accounts payable on our accompanying consolidated balance sheets as of December 31, 2012 and 2011, respectively. During 2012 and 2010, we received $11.2 million and $8.8 million, respectively, in cash from SPD as a return on our investment.
The following table summarizes our related party balances with SPD within our consolidated balance sheets (in thousands):
Balance Sheet Caption | As of December 31, | |||||||
2012 | 2011 | |||||||
Accounts receivable, net of allowances | $ | 7,317 | $ | 8,931 | ||||
Prepaid expenses and other current assets | $ | 9,161 | $ | 9,775 | ||||
Deferred financing costs, net, and other non-current assets | $ | 14,629 | $ | 15,455 | ||||
Accounts payable | $ | 21,258 | $ | 19,273 |
In connection with the formation of SPD in May 2007, we entered into an option agreement with P&G, pursuant to which P&G had the right, for a period of 60 days commencing on May 17, 2011, to require us to acquire all of P&G’s interest in SPD at fair market value, and P&G had the right, upon certain material breaches by us of our obligations to SPD, to acquire all of our interest in SPD at fair market value. On July 16, 2011, P&G’s option to require us to acquire its interest in SPD at fair market value expired. In connection with the expiration of the option, we recognized a gain in the amount of approximately $288.9 million during the third quarter of 2011.
(19) Valuation and Qualifying Accounts
We have established reserves against accounts receivable for doubtful accounts, product returns, discounts and other allowances. The activity in the table below includes all accounts receivable reserves. Provisions for doubtful accounts are recorded as a component of general and administrative expenses. Provisions for returns, discounts and other allowances are charged against net product sales. The following table sets forth activities in our accounts receivable reserve accounts (in thousands):
Balance at Beginning of Period | Provision | Amounts Charged Against Reserves | Balance at End of Period | |||||||||||||
Year ended December 31, 2010 | $ | 12,462 | $ | 14,021 | $ | (6,102 | ) | $ | 20,381 | |||||||
Year ended December 31, 2011 | $ | 20,381 | $ | 23,614 | $ | (19,418 | ) | $ | 24,577 | |||||||
Year ended December 31, 2012 | $ | 24,577 | $ | 43,731 | $ | (31,912 | ) | $ | 36,396 |
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ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(19) Valuation and Qualifying Accounts (Continued)
We have established reserves against obsolete and slow-moving inventories. The activity in the table below includes all inventory reserves. Provisions for obsolete and slow-moving inventories are recorded as a component of cost of net product sales. The following table sets forth activities in our inventory reserve accounts (in thousands):
Balance at Beginning of Period | Provision | Amounts Charged Against Reserves | Balance at End of Period | |||||||||||||
Year ended December 31, 2010 | $ | 12,632 | $ | 6,269 | $ | (6,593 | ) | $ | 12,308 | |||||||
Year ended December 31, 2011 | $ | 12,308 | $ | 6,144 | $ | (4,843 | ) | $ | 13,609 | |||||||
Year ended December 31, 2012 | $ | 13,609 | $ | 13,587 | $ | (5,374 | ) | $ | 21,822 |
(20) Restructuring Activities
The following table sets forth aggregate restructuring charges recorded in our consolidated statements of operations for the years ended December 31, 2012, 2011 and 2010 (in thousands):
Statement of Operations Caption | 2012 | 2011 | 2010 | |||||||||
Cost of net revenue | $ | 3,113 | $ | 2,915 | $ | 3,896 | ||||||
Research and development | 1,278 | 433 | 488 | |||||||||
Sales and marketing | 2,504 | 4,954 | 1,539 | |||||||||
General and administrative | 13,430 | 19,980 | 9,344 | |||||||||
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Total operating expenses | 20,325 | 28,282 | 15,267 | |||||||||
Interest expense, including amortization of original issue discounts and deferred financing costs | 277 | 280 | 348 | |||||||||
Other income, net | — | — | (3,494 | ) | ||||||||
Equity earnings of unconsolidated entities, net of tax | — | 580 | 3,009 | |||||||||
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Total charges | $ | 20,602 | $ | 29,142 | $ | 15,130 | ||||||
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(a) 2012 Restructuring Plans
In 2012, management developed cost reduction plans within our professional diagnostics business segment, including the integration of our business in Brazil, Europe and the United States. Additionally, management developed new plans to continue our efforts to reduce costs within our health information solutions business segment, including the impairment of fixed assets and intangibles associated with terminated projects. The following table summarizes the restructuring activities related to our 2012 restructuring plans for the year ended December 31, 2012 (in thousands):
Professional Diagnostics | Health Information Solutions | Total | ||||||||||
Severance-related costs | $ | 4,732 | $ | 3,045 | $ | 7,777 | ||||||
Facility and transition costs | 119 | 1,234 | 1,353 | |||||||||
Other exit costs | — | 15 | 15 | |||||||||
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Cash charges | 4,851 | 4,294 | 9,145 | |||||||||
Fixed asset and inventory impairments | 304 | 2,689 | 2,993 | |||||||||
Intangible asset impairments | — | 2,988 | 2,988 | |||||||||
Other non-cash charges | — | (31 | ) | (31 | ) | |||||||
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Total charges | $ | 5,155 | $ | 9,940 | $ | 15,095 | ||||||
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ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(20) Restructuring Activities (Continued)
We anticipate incurring approximately $2.2 million in additional severance and facility costs under these plans related to our health information solutions business segment through 2014, as well as $0.3 million in additional severance and facility costs under these plans related to our professional diagnostics business segment in 2013. As of December 31, 2012, $3.4 million in severance and exit costs under these plans remain unpaid.
(b) 2011 Restructuring Plans
In 2011, management executed a company-wide cost reduction plan, which impacted our corporate and other business segment, as well as the health information solutions and professional diagnostics business segments. Management also developed plans within our professional diagnostics business segment to consolidate operating activities among certain of our U.S., European and Asia Pacific subsidiaries, including transferring the manufacturing of our Panbio products from Australia to our Standard Diagnostics facility in South Korea and eliminating redundant costs among our newly acquired Axis-Shield subsidiaries. Additionally, within our health information solutions business segment, management executed plans to further reduce costs and improve efficiencies, as well as cease operations at our GeneCare Medical Genetics Center, Inc., or GeneCare, facility in Chapel Hill, North Carolina and transfer the majority of our Quality Assured Services, Inc. operation in Orlando, Florida to our facility in Livermore, California. The following table summarizes the restructuring activities related to our 2011 restructuring plans for the years ended December 31, 2012 and 2011 (in thousands):
Professional Diagnostics | ||||||||||||
2012 | 2011 | Since Inception | ||||||||||
Severance-related costs | $ | 3,161 | $ | 12,047 | $ | 15,208 | ||||||
Facility and transition costs | 1,599 | 361 | 1,960 | |||||||||
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Cash charges | 4,760 | 12,408 | 17,168 | |||||||||
Fixed asset and inventory impairments | 704 | 659 | 1,363 | |||||||||
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Total charges | $ | 5,464 | $ | 13,067 | $ | 18,531 | ||||||
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Health Information Solutions | ||||||||||||
2012 | 2011 | Since Inception | ||||||||||
Severance-related costs | $ | — | $ | 2,254 | $ | 2,254 | ||||||
Facility and transition costs | (723 | ) | 6,341 | 5,618 | ||||||||
Other exit costs | 78 | 94 | 172 | |||||||||
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Cash charges | (645 | ) | 8,689 | 8,044 | ||||||||
Fixed asset and inventory impairments | 85 | 864 | 949 | |||||||||
Intangible asset impairments | — | 2,935 | 2,935 | |||||||||
Other non-cash charges | — | 761 | 761 | |||||||||
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Total charges | $ | (560 | ) | $ | 13,249 | $ | 12,689 | |||||
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Corporate and Other | ||||||||||||
2012 | 2011 | Since Inception | ||||||||||
Severance-related costs | $ | (3 | ) | $ | 1,193 | $ | 1,190 | |||||
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Cash charges | (3 | ) | 1,193 | 1,190 | ||||||||
Fixed asset and inventory impairments | — | 3 | 3 | |||||||||
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Total charges | $ | (3 | ) | $ | 1,196 | $ | 1,193 | |||||
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ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(20) Restructuring Activities (Continued)
We anticipate incurring approximately $1.8 million in additional costs under these plans related to our professional diagnostics business segment, primarily related to severance and facility exit costs, and may also incur impairment charges on assets as plans are finalized. We anticipate incurring minimal additional costs under these plans related to our health information solutions business segment, primarily related to imputed interest on facility lease obligations. As of December 31, 2012, $1.5 million in cash charges remain unpaid.
(c) 2010 Restructuring Plans
In 2010, management developed several plans to reduce costs and improve efficiencies within our health information solutions and professional diagnostics business segments. The following table summarizes the restructuring activities related to the 2010 restructuring plans for the years ended December 31, 2012, 2011 and 2010 and since inception (in thousands):
Professional Diagnostics | ||||||||||||||||
2012 | 2011 | 2010 | Since Inception | |||||||||||||
Severance-related costs | $ | — | $ | 74 | $ | 2,406 | $ | 2,480 | ||||||||
Facility and transition costs | — | 174 | 812 | 986 | ||||||||||||
Other exit costs | — | — | 10 | 10 | ||||||||||||
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Cash charges | — | 248 | 3,228 | 3,476 | ||||||||||||
Fixed asset and inventory impairments | — | — | 126 | 126 | ||||||||||||
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Total charges | $ | — | $ | 248 | $ | 3,354 | $ | 3,602 | ||||||||
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Health Information Solutions | ||||||||||||||||
2012 | 2011 | 2010 | Since Inception | |||||||||||||
Severance-related costs | $ | — | $ | — | $ | 4,647 | $ | 4,647 | ||||||||
Facility and transition costs (recoveries) | (84 | ) | 40 | 2,436 | 2,392 | |||||||||||
Other exit costs | 52 | 98 | 190 | 340 | ||||||||||||
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Cash charges (recoveries) | (32 | ) | 138 | 7,273 | 7,379 | |||||||||||
Fixed asset and inventory impairments | — | — | 165 | 165 | ||||||||||||
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Total charges (recoveries) | $ | (32 | ) | $ | 138 | $ | 7,438 | $ | 7,544 | |||||||
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We do not anticipate incurring significant additional charges under these plans. As of December 31, 2012, $0.7 million in facility-related costs remain unpaid.
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ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(20) Restructuring Activities (Continued)
(d) 2008 Restructuring Plans
In May 2008, management decided to close our facility located in Bedford, England and initiated steps to cease operations at this facility and transition the manufacturing operations principally to our manufacturing facilities in Shanghai and Hangzhou, China. The following table summarizes the restructuring activities under this plan for the years ended December 31, 2012, 2011 and 2010 and since inception (in thousands):
2012 | 2011 | 2010 | Since Inception | |||||||||||||
Severance-related costs (recoveries) | $ | (16 | ) | $ | (74 | ) | $ | 154 | $ | 3,364 | ||||||
Facility and transition costs (recoveries) | (32 | ) | 577 | 1,644 | 4,180 | |||||||||||
Other exit costs (recoveries) | — | — | (3,443 | ) | 3,842 | |||||||||||
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Cash charges (recoveries) | (48 | ) | 503 | (1,645 | ) | 11,386 | ||||||||||
Fixed asset and inventory impairments (recoveries) | — | (125 | ) | 399 | 5,796 | |||||||||||
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Total charges (recoveries) | $ | (48 | ) | $ | 378 | $ | (1,246 | ) | $ | 17,182 | ||||||
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During the year ended December 31, 2010, we recorded net recoveries of $3.4 million in other exit costs as a result of a settlement of the facility restoration and lease costs with the landlord of the Bedford facility. The costs incurred for the years ended December 31, 2012, 2011 and 2010 were included in our professional diagnostics business segment.
In addition to the restructuring charges discussed above, certain charges associated with the Bedford facility closure were borne by SPD, our 50/50 joint venture with P&G. Of the restructuring charges recorded by SPD, 50% has been included in equity earnings of unconsolidated entities, net of tax, in our consolidated statements of operations. The following table summarizes the 50% portion of the restructuring charges borne by SPD and included in equity earnings of unconsolidated entities, net of tax, for the years ended December 31, 2011 and 2010 and since inception (in thousands):
2011 | 2010 | Since Inception | ||||||||||
Severance-related costs | $ | 30 | $ | 747 | $ | 5,797 | ||||||
Facility and transition costs | 479 | 2,364 | 5,396 | |||||||||
Other exit costs | — | 145 | 283 | |||||||||
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Cash charges | 509 | 3,256 | 11,476 | |||||||||
Fixed asset and inventory impairments (recoveries) | 71 | (247 | ) | 4,635 | ||||||||
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Total charges included in equity earnings of unconsolidated entities, net of tax | $ | 580 | $ | 3,009 | $ | 16,111 | ||||||
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As of December 31, 2012, all cash charges have been paid and we do not anticipate incurring significant additional restructuring charges under this plan.
F-71
Table of Contents
ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(20) Restructuring Activities (Continued)
Additionally, in 2008, management developed and initiated plans to transition the businesses of Cholestech and HemoSense, Inc., or HemoSense, to our San Diego, California facility. Restructuring charges under these plans related to our professional diagnostics business segment. The following table summarizes the restructuring activities for these plans for the years ended December 31, 2012, 2011 and 2010 and since inception (in thousands):
2012 | 2011 | 2010 | Since Inception | |||||||||||||
Severance-related costs | $ | — | $ | — | $ | 158 | $ | 4,505 | ||||||||
Facility and transition costs | 554 | 198 | 1,358 | 5,267 | ||||||||||||
Other exit costs | 132 | 88 | 97 | 698 | ||||||||||||
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Cash charges | 686 | 286 | 1,613 | 10,470 | ||||||||||||
Fixed asset and inventory impairments | — | — | 912 | 5,011 | ||||||||||||
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Total charges | $ | 686 | $ | 286 | $ | 2,525 | $ | 15,481 | ||||||||
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We anticipate incurring an additional $0.1 million in facility lease obligation charges through March 2017. As of December 31, 2012, $0.6 million in facility-related costs remain unpaid.
(f) Restructuring Reserves
The following table summarizes our restructuring reserves related to the plans described above, of which $5.0 million is included in accrued expenses and other current liabilities and $1.2 million is included in other long-term liabilities on our consolidated balance sheets (in thousands):
Severance- related Costs | Facility and Transition Costs | Other Exit Costs | Total | |||||||||||||
Balance, December 31, 2009 | $ | 8,426 | $ | 3,630 | $ | 6,850 | $ | 18,906 | ||||||||
Cash charges (recoveries) | 7,408 | 6,257 | (3,146 | ) | 10,519 | |||||||||||
Cash charges borne by SPD(1) | 1,494 | 4,728 | 290 | 6,512 | ||||||||||||
Payments | (14,995 | ) | (10,183 | ) | (380 | ) | (25,558 | ) | ||||||||
Currency adjustments | (346 | ) | (174 | ) | (156 | ) | (676 | ) | ||||||||
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Balance, December 31, 2010 | 1,987 | 4,258 | 3,458 | 9,703 | ||||||||||||
Cash charges | 15,494 | 7,691 | 280 | 23,465 | ||||||||||||
Cash charges borne by SPD(1) | 60 | 958 | — | 1,018 | ||||||||||||
Payments | (13,923 | ) | (7,592 | ) | (3,133 | ) | (24,648 | ) | ||||||||
Currency adjustments | (238 | ) | (100 | ) | (12 | ) | (350 | ) | ||||||||
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Balance, December 31, 2011 | 3,380 | 5,215 | 593 | 9,188 | ||||||||||||
Cash charges | 10,919 | 2,667 | 277 | 13,863 | ||||||||||||
Payments | (11,118 | ) | (5,469 | ) | (248 | ) | (16,835 | ) | ||||||||
Currency adjustments | (14 | ) | 16 | — | 2 | |||||||||||
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Balance, December 31, 2012 | $ | 3,167 | $ | 2,429 | $ | 622 | $ | 6,218 | ||||||||
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(1) | Amounts represent 100% of the charges borne by SPD. |
F-72
Table of Contents
ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(21) Equity Investments
We account for the results from our equity investments under the equity method of accounting in accordance with ASC 323Investments — Equity Method and Joint Ventures,based on the percentage of our ownership interest in the business. Our equity investments primarily include the following:
(i) Axis-Shield
During the third quarter of 2011, we acquired, in various transactions, approximately 15.0 million shares of Axis-Shield, which represented a 29.9% ownership interest in Axis-Shield as of September 30, 2011. During the fourth quarter of 2011, we acquired a controlling interest of Axis-Shield (Note 4). Our equity earnings attributable to this investment during 2011 were immaterial.
(ii) SPD
In May 2007, we completed the formation of SPD, our 50/50 joint venture with P&G for the development, manufacturing, marketing and sale of existing and to-be-developed consumer diagnostic products, outside the cardiology, diabetes and oral care fields. Upon completion of the arrangement to form SPD, we ceased to consolidate the operating results of our consumer diagnostics business related to SPD. For the years ended December 31, 2012, 2011 and 2010, we recorded earnings of $10.7 million, $5.9 million and $8.5 million, respectively, in equity earnings of unconsolidated entities, net of tax, in our accompanying consolidated statements of operations, which represented our 50% share of SPD’s net income for the respective periods.
(iii) TechLab
In May 2006, we acquired 49% of TechLab, Inc., or TechLab, a privately-held developer, manufacturer and distributor of rapid non-invasive intestinal diagnostics tests in the areas of intestinal inflammation, antibiotic-associated diarrhea and parasitology. For the years ended December 31, 2012, 2011 and 2010, we recorded earnings of $2.3 million, $2.0 million and $1.9 million, respectively, in equity earnings of unconsolidated entities, net of tax, in our accompanying consolidated statements of operations, which represented our minority share of TechLab’s net income for the respective period.
Summarized financial information for the P&G joint venture and TechLab on a combined basis is as follows (in thousands):
Combined condensed results of operations:
For The Years Ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
Net revenue | $ | 212,955 | $ | 232,857 | $ | 224,193 | ||||||
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Gross profit | $ | 139,694 | $ | 146,466 | $ | 142,159 | ||||||
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Net income after taxes | $ | 26,056 | $ | 15,922 | $ | 20,913 | ||||||
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F-73
Table of Contents
ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(21) Equity Investments (Continued)
Combined condensed balance sheets:
As of December 31, | ||||||||
2012 | 2011 | |||||||
Current assets | $ | 79,842 | $ | 84,376 | ||||
Non-current assets | 38,991 | 37,659 | ||||||
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Total assets | $ | 118,833 | $ | 122,035 | ||||
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Current liabilities | $ | 45,084 | $ | 49,453 | ||||
Non-current liabilities | 6,791 | 6,326 | ||||||
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Total liabilities | $ | 51,875 | $ | 55,779 | ||||
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(22) Discontinued Operations
On January 15, 2010, we completed the sale of our vitamins and nutritional supplements business for a purchase price of approximately $62.6 million in cash, which is net of the final working capital adjustment. The sale included our entire private label and branded nutritional businesses and represents the complete divestiture of our entire vitamins and nutritional supplements business segment. We recognized a gain of approximately $18.7 million ($11.6 million, net of tax) during 2010. The results of the vitamins and nutritional supplements business, which represents our entire vitamins and nutritional supplements business segment, are included in income from discontinued operations, net of tax, in our consolidated financial statements.
The following summarized financial information related to the vitamins and nutritional supplements businesses has been segregated from continuing operations and reported as discontinued operations through the date of disposition (in thousands).
For The Year Ended December 31, 2010 | ||||
Net revenue | $ | 4,362 | ||
Income from discontinued operations before income taxes | $ | 18,487 | ||
Provision for income taxes | $ | 7,090 | ||
Net income from discontinued operations | $ | 11,397 |
(23) Supplemental Cash Flow Information
Cash Paid for Interest and Income Taxes:
During 2012, 2011 and 2010, we made cash payments for interest totaling $205.0 million, $164.7 million and $117.1 million, respectively.
During 2012, 2011 and 2010, total net cash paid for income taxes was $31.9 million, $47.8 million and $31.1 million, respectively.
F-74
Table of Contents
ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(23) Supplemental Cash Flow Information (Continued)
Non-cash Investing Activities:
During 2011, we issued shares of our common stock in connection with certain acquisitions (dollars in thousands):
Date of Acquisition | Common Stock Issued | |||||||||||
Company Acquired | Number of Shares | Fair Value of Shares | ||||||||||
Arriva Medical LLC | November 23, 2011 | 806,452 | $ | 15,183 | ||||||||
Pregnancy.org, LLC | January 28, 2011 | 25,463 | $ | 1,000 |
Non-Cash Financing Activities:
During 2011 and 2010, we recorded non-cash income (expense) to accumulated other comprehensive income (loss) of $7.3 million and $2.4 million, respectively, representing the change in fair market value of our interest rate swap agreement.
During 2012, we issued shares of our common stock in connection with the settlement of an acquisition-related contingent consideration obligation (dollars in thousands):
Common Stock Issued | ||||||||
Contingent Consideration Obligation | Number of Shares | Fair Value of Shares | ||||||
Mologic | 66,666 | $ | 1,243 |
(24) Guarantor Financial Information
Our 7.25% senior notes due 2018, our 7.875% senior notes due 2016, our 9% senior subordinated notes due 2018, and our 8.625% senior subordinated notes due 2018 are guaranteed by certain of our consolidated wholly owned subsidiaries, or the Guarantor Subsidiaries. The guarantees are full and unconditional and joint and several. The following supplemental financial information sets forth, on a consolidating basis, audited balance sheets as of December 31, 2012 and 2011, the related statements of operations, statements of comprehensive income (loss) and cash flows for each of the three years in the period ended December 31, 2012, respectively, for Alere Inc., the Guarantor Subsidiaries and our other subsidiaries, or the Non-Guarantor Subsidiaries. The supplemental financial information reflects the investments of Alere Inc. and the Guarantor Subsidiaries in the Guarantor and Non-Guarantor Subsidiaries using the equity method of accounting.
We have extensive transactions and relationships between various members of the consolidated group. These transactions and relationships include intercompany pricing agreements, intellectual property royalty agreements and general and administrative and research and development cost-sharing agreements. Because of these relationships, it is possible that the terms of these transactions are not the same as those that would result from transactions among wholly unrelated parties.
For comparative purposes, certain amounts for prior periods have been reclassified to conform to the current period classification.
F-75
Table of Contents
ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(24) Guarantor Financial Information (Continued)
CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 2012
(in thousands)
Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net product sales | $ | — | $ | 869,245 | $ | 1,188,363 | $ | (143,877 | ) | $ | 1,913,731 | |||||||||
Services revenue | — | 810,362 | 66,156 | — | 876,518 | |||||||||||||||
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Net product sales and services revenue | — | 1,679,607 | 1,254,519 | (143,877 | ) | 2,790,249 | ||||||||||||||
License and royalty revenue | — | 18,848 | 17,958 | (8,230 | ) | 28,576 | ||||||||||||||
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Net revenue | — | 1,698,455 | 1,272,477 | (152,107 | ) | 2,818,825 | ||||||||||||||
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Cost of net product sales | 6,040 | 419,815 | 640,791 | (134,496 | ) | 932,150 | ||||||||||||||
Cost of services revenue | — | 426,291 | 30,767 | (6,059 | ) | 450,999 | ||||||||||||||
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Cost of net product sales and services revenue | 6,040 | 846,106 | 671,558 | (140,555 | ) | 1,383,149 | ||||||||||||||
Cost of license and royalty revenue | — | 28 | 15,555 | (8,229 | ) | 7,354 | ||||||||||||||
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Cost of net revenue | 6,040 | 846,134 | 687,113 | (148,784 | ) | 1,390,503 | ||||||||||||||
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Gross profit (loss) | (6,040 | ) | 852,321 | 585,364 | (3,323 | ) | 1,428,322 | |||||||||||||
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Operating expenses: | ||||||||||||||||||||
Research and development | 24,593 | 70,478 | 87,930 | — | 183,001 | |||||||||||||||
Sales and marketing | 4,414 | 345,717 | 293,292 | — | 643,423 | |||||||||||||||
General and administrative | 52,079 | 250,784 | 189,903 | — | 492,766 | |||||||||||||||
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Operating income (loss) | (87,126 | ) | 185,342 | 14,239 | (3,323 | ) | 109,132 | |||||||||||||
Interest expense, including amortization of original issue discounts and deferred financing costs | (236,320 | ) | (39,574 | ) | (13,080 | ) | 48,414 | (240,560 | ) | |||||||||||
Other income (expense), net | (16,655 | ) | 40,479 | 34,547 | (48,414 | ) | 9,957 | |||||||||||||
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Income (loss) before provision (benefit) forincome taxes | (340,101 | ) | 186,247 | 35,706 | (3,323 | ) | (121,471 | ) | ||||||||||||
Provision (benefit) for income taxes | (111,595 | ) | 57,688 | 24,543 | (955 | ) | (30,319 | ) | ||||||||||||
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Income (loss) before equity earnings ofunconsolidated entities, net of tax | (228,506 | ) | 128,559 | 11,163 | (2,368 | ) | (91,152 | ) | ||||||||||||
Equity in earnings of subsidiaries, net of tax | 148,394 | (1,574 | ) | — | (146,820 | ) | — | |||||||||||||
Equity earnings of unconsolidated entities, net of tax | 2,205 | — | 10,952 | 88 | 13,245 | |||||||||||||||
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Net income (loss) | (77,907 | ) | 126,985 | 22,115 | (149,100 | ) | (77,907 | ) | ||||||||||||
Less: Net income attributable to non-controlling interests | — | — | 275 | — | 275 | |||||||||||||||
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Net income (loss) attributable to Alere Inc. andSubsidiaries | (77,907 | ) | 126,985 | 21,840 | (149,100 | ) | (78,182 | ) | ||||||||||||
Preferred stock dividends | (21,293 | ) | — | — | — | (21,293 | ) | |||||||||||||
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Net income (loss) available to common stockholders | $ | (99,200 | ) | $ | 126,985 | $ | 21,840 | $ | (149,100 | ) | $ | (99,475 | ) | |||||||
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F-76
Table of Contents
ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(24) Guarantor Financial Information (Continued)
CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 2011
(in thousands)
Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net product sales | $ | — | $ | 900,853 | $ | 910,100 | $ | (127,821 | ) | $ | 1,683,132 | |||||||||
Services revenue | — | 613,310 | 66,612 | — | 679,922 | |||||||||||||||
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Net product sales and services revenue | — | 1,514,163 | 976,712 | (127,821 | ) | 2,363,054 | ||||||||||||||
License and royalty revenue | — | 10,280 | 19,152 | (5,959 | ) | 23,473 | ||||||||||||||
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Net revenue | — | 1,524,443 | 995,864 | (133,780 | ) | 2,386,527 | ||||||||||||||
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Cost of net product sales | 3,651 | 410,903 | 510,550 | (129,680 | ) | 795,424 | ||||||||||||||
Cost of services revenue | — | 312,098 | 26,134 | — | 338,232 | |||||||||||||||
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Cost of net product sales and services revenue | 3,651 | 723,001 | 536,684 | (129,680 | ) | 1,133,656 | ||||||||||||||
Cost of license and royalty revenue | — | 3 | 12,992 | (5,959 | ) | 7,036 | ||||||||||||||
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Cost of net revenue | 3,651 | 723,004 | 549,676 | (135,639 | ) | 1,140,692 | ||||||||||||||
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Gross profit (loss) | (3,651 | ) | 801,439 | 446,188 | 1,859 | 1,245,835 | ||||||||||||||
Operating expenses: | ||||||||||||||||||||
Research and development | 20,182 | 69,292 | 60,691 | — | 150,165 | |||||||||||||||
Sales and marketing | 4,091 | 336,297 | 225,195 | — | 565,583 | |||||||||||||||
General and administrative | 48,891 | 228,871 | 121,568 | — | 399,330 | |||||||||||||||
Goodwill impairment charge | — | 383,612 | — | — | 383,612 | |||||||||||||||
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Operating income (loss) | (76,815 | ) | (216,633 | ) | 38,734 | 1,859 | (252,855 | ) | ||||||||||||
Interest expense, including amortization of original issue discounts and deferred financing costs | (156,948 | ) | (100,636 | ) | (8,734 | ) | 62,347 | (203,971 | ) | |||||||||||
Other income (expense), net | (8,813 | ) | 54,186 | 18,857 | (62,347 | ) | 1,883 | |||||||||||||
Gain on sale of joint venture interest | 16,309 | — | 272,587 | — | 288,896 | |||||||||||||||
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Income (loss) from continuing operations beforeprovision (benefit) for income taxes | (226,267 | ) | (263,083 | ) | 321,444 | 1,859 | (166,047 | ) | ||||||||||||
Provision (benefit) for income taxes | (67,482 | ) | 20,402 | 24,822 | (1,956 | ) | (24,214 | ) | ||||||||||||
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Income (loss) from continuing operations before equityearnings of unconsolidated entities, net of tax | (158,785 | ) | (283,485 | ) | 296,622 | 3,815 | (141,833 | ) | ||||||||||||
Equity in earnings of subsidiaries, net of tax | 23,524 | 1,530 | — | (25,054 | ) | — | ||||||||||||||
Equity earnings of unconsolidated entities, net of tax | 1,952 | — | 6,503 | 69 | 8,524 | |||||||||||||||
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Net income (loss) | (133,309 | ) | (281,955 | ) | 303,125 | (21,170 | ) | (133,309 | ) | |||||||||||
Less: Net income attributable to non-controlling interests | — | — | 233 | — | 233 | |||||||||||||||
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Net income (loss) attributable to Alere Inc. andSubsidiaries | (133,309 | ) | (281,955 | ) | 302,892 | (21,170 | ) | (133,542 | ) | |||||||||||
Preferred stock dividends | (22,049 | ) | — | — | — | (22,049 | ) | |||||||||||||
Preferred stock repurchase | 23,936 | — | — | — | 23,936 | |||||||||||||||
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Net income (loss) available to common | $ | (131,422 | ) | $ | (281,955 | ) | $ | 302,892 | $ | (21,170 | ) | $ | (131,655 | ) | ||||||
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F-77
Table of Contents
ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(24) Guarantor Financial Information (Continued)
CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 2010
(in thousands)
Issuer | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net product sales | $ | — | $ | 843,542 | $ | 740,371 | $ | (111,510 | ) | $ | 1,472,403 | |||||||||
Services revenue | — | 608,482 | 53,703 | — | 662,185 | |||||||||||||||
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Net product sales and services revenue | — | 1,452,024 | 794,074 | (111,510 | ) | 2,134,588 | ||||||||||||||
License and royalty revenue | — | 10,003 | 16,167 | (5,411 | ) | 20,759 | ||||||||||||||
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Net revenue | — | 1,462,027 | 810,241 | (116,921 | ) | 2,155,347 | ||||||||||||||
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Cost of net product sales | 166 | 396,325 | 403,098 | (111,264 | ) | 688,325 | ||||||||||||||
Cost of services revenue | — | 304,270 | 21,016 | — | 325,286 | |||||||||||||||
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Cost of net product sales and services revenue | 166 | 700,595 | 424,114 | (111,264 | ) | 1,013,611 | ||||||||||||||
Cost of license and royalty revenue | — | 66 | 12,494 | (5,411 | ) | 7,149 | ||||||||||||||
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Cost of net revenue | 166 | 700,661 | 436,608 | (116,675 | ) | 1,020,760 | ||||||||||||||
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Gross profit (loss) | (166 | ) | 761,366 | 373,633 | (246 | ) | 1,134,587 | |||||||||||||
Operating expenses: | ||||||||||||||||||||
Research and development | 20,936 | 68,862 | 43,480 | — | 133,278 | |||||||||||||||
Sales and marketing | 3,001 | 316,884 | 179,239 | — | 499,124 | |||||||||||||||
General and administrative | 46,982 | 234,307 | 165,628 | — | 446,917 | |||||||||||||||
Goodwill impairment charge | — | 1,006,357 | — | — | 1,006,357 | |||||||||||||||
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Operating loss | (71,085 | ) | (865,044 | ) | (14,714 | ) | (246 | ) | (951,089 | ) | ||||||||||
Interest expense, including amortization of original issue discounts and deferred financing costs | (76,179 | ) | (135,312 | ) | (10,430 | ) | 82,486 | (139,435 | ) | |||||||||||
Other income (expense), net | 10,304 | 69,938 | 24,982 | (82,486 | ) | 22,738 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Loss from continuing operations before provision (benefit) for income taxes | (136,960 | ) | (930,418 | ) | (162 | ) | (246 | ) | (1,067,786 | ) | ||||||||||
Provision (benefit) for income taxes | (58,592 | ) | 9,059 | 19,602 | — | (29,931 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Loss from continuing operations before equityearnings of unconsolidated entities, net of tax | (78,368 | ) | (939,477 | ) | (19,764 | ) | (246 | ) | (1,037,855 | ) | ||||||||||
Equity in earnings of subsidiaries, net of tax | (940,121 | ) | — | — | 940,121 | — | ||||||||||||||
Equity earnings (losses) of unconsolidated entities, net of tax | 2,023 | — | 8,680 | (137 | ) | 10,566 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Income (loss) from continuing operations | (1,016,466 | ) | (939,477 | ) | (11,084 | ) | 939,738 | (1,027,289 | ) | |||||||||||
Income from discontinued operations, net of tax | 574 | 9,727 | 1,096 | — | 11,397 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income (loss) | (1,015,892 | ) | (929,750 | ) | (9,988 | ) | 939,738 | (1,015,892 | ) | |||||||||||
Less: Net income attributable to non-controlling interests | — | — | 1,418 | — | 1,418 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income (loss) attributable to Alere Inc. andSubsidiaries | (1,015,892 | ) | (929,750 | ) | (11,406 | ) | 939,738 | (1,017,310 | ) | |||||||||||
Preferred stock dividends | (24,235 | ) | — | — | — | (24,235 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income (loss) available to common stockholders | $ | (1,040,127 | ) | $ | (929,750 | ) | $ | (11,406 | ) | $ | 939,738 | $ | (1,041,545 | ) | ||||||
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F-78
Table of Contents
ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(24) Guarantor Financial Information (Continued)
CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
For the Year Ended December 31, 2012
(in thousands)
Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net income (loss) | $ | (77,907 | ) | $ | 126,985 | $ | 22,115 | $ | (149,100 | ) | $ | (77,907 | ) | |||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Other comprehensive income, before tax: | ||||||||||||||||||||
Changes in cumulative translation adjustment | (834 | ) | (302 | ) | 53,654 | 2,124 | 54,642 | |||||||||||||
Unrealized gains (losses) on available for sale securities | (221 | ) | 5 | — | — | (216 | ) | |||||||||||||
Unrealized gains on hedging instruments | 16 | — | 372 | — | 388 | |||||||||||||||
Minimum pension liability adjustment | — | — | (1,042 | ) | — | (1,042 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Other comprehensive income (loss), before tax | (1,039 | ) | (297 | ) | 52,984 | 2,124 | 53,772 | |||||||||||||
Income tax benefit related to items of other comprehensive income (loss) | (86 | ) | — | (286 | ) | — | (372 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Other comprehensive income (loss), net of tax | (953 | ) | (297 | ) | 53,270 | 2,124 | 54,144 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Comprehensive income (loss) | (78,860 | ) | 126,688 | 75,385 | (146,976 | ) | (23,763 | ) | ||||||||||||
Less: Comprehensive income attributable to non-controlling interests | — | — | 275 | — | 275 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Comprehensive income (loss) attributable to Alere Inc. and Subsidiaries | $ | (78,860 | ) | $ | 126,688 | $ | 75,110 | $ | (146,976 | ) | $ | (24,038 | ) | |||||||
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F-79
Table of Contents
ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(24) Guarantor Financial Information (Continued)
CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
For the Year Ended December 31, 2011
(in thousands)
Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net income (loss) | $ | (133,309 | ) | $ | (281,955 | ) | $ | 303,125 | $ | (21,170 | ) | $ | (133,309 | ) | ||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Other comprehensive income (loss), before tax: | ||||||||||||||||||||
Changes in cumulative translation adjustment | (417 | ) | 342 | (37,825 | ) | 2,070 | (35,830 | ) | ||||||||||||
Unrealized losses on available for sale securities | (33 | ) | 12 | (450 | ) | — | (471 | ) | ||||||||||||
Unrealized gains (losses) on hedging instruments | 11,952 | — | (448 | ) | — | 11,504 | ||||||||||||||
Minimum pension liability adjustment | — | — | (3,070 | ) | — | (3,070 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Other comprehensive income (loss), before tax | 11,502 | 354 | (41,793 | ) | 2,070 | (27,867 | ) | |||||||||||||
Income tax provision (benefit) related to items of other comprehensive income (loss) | 4,650 | — | (1,557 | ) | — | 3,093 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Other comprehensive income (loss), net of tax | 6,852 | 354 | (40,236 | ) | 2,070 | (30,960 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Comprehensive income (loss) | (126,457 | ) | (281,601 | ) | 262,889 | (19,100 | ) | (164,269 | ) | |||||||||||
Less: Comprehensive income attributable to non-controlling interests | — | — | 233 | — | 233 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Comprehensive income (loss) attributable to Alere Inc. and Subsidiaries | $ | (126,457 | ) | $ | (281,601 | ) | $ | 262,656 | $ | (19,100 | ) | $ | (164,502 | ) | ||||||
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F–80
Table of Contents
ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(24) Guarantor Financial Information (Continued)
CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
For the Year Ended December 31, 2010
(in thousands)
Issuer | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net loss | $ | (1,015,892 | ) | $ | (929,750 | ) | $ | (9,988 | ) | $ | 939,738 | $ | (1,015,892 | ) | ||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Other comprehensive income (loss), before tax: | ||||||||||||||||||||
Changes in cumulative translation adjustment | (1,553 | ) | (160 | ) | 3,632 | (2,129 | ) | (210 | ) | |||||||||||
Unrealized gains on available for sale securities | 804 | — | 347 | — | 1,151 | |||||||||||||||
Unrealized gains on hedging instruments | 3,965 | — | — | — | 3,965 | |||||||||||||||
Minimum pension liability adjustment | — | — | (113 | ) | — | (113 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Other comprehensive income (loss), before tax | 3,216 | (160 | ) | 3,866 | (2,129 | ) | 4,793 | |||||||||||||
Income tax provision related to items of other comprehensive income (loss) | 1,649 | — | — | — | 1,649 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Other comprehensive income (loss), net of tax | 1,567 | (160 | ) | 3,866 | (2,129 | ) | 3,144 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Comprehensive loss | (1,014,325 | ) | (929,910 | ) | (6,122 | ) | 937,609 | (1,012,748 | ) | |||||||||||
Less: Comprehensive income attributable to non-controlling interests | — | — | 1,418 | — | 1,418 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Comprehensive loss attributable to Alere Inc. and Subsidiaries | $ | (1,014,325 | ) | $ | (929,910 | ) | $ | (7,540 | ) | $ | 937,609 | $ | (1,014,166 | ) | ||||||
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|
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F-81
Table of Contents
ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(24) Guarantor Financial Information (Continued)
CONSOLIDATING BALANCE SHEET
December 31, 2012
(in thousands)
Issuer | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
ASSETS | ||||||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 3,623 | $ | 67,449 | $ | 257,274 | $ | — | $ | 328,346 | ||||||||||
Restricted cash | — | 1,680 | 1,396 | — | 3,076 | |||||||||||||||
Marketable securities | — | 787 | 117 | — | 904 | |||||||||||||||
Accounts receivable, net of allowances | — | 241,050 | 283,282 | — | 524,332 | |||||||||||||||
Inventories, net | — | 142,413 | 203,230 | (8,522 | ) | 337,121 | ||||||||||||||
Deferred tax assets | 12,193 | 39,601 | 13,138 | 2,790 | 67,722 | |||||||||||||||
Prepaid expenses and other current assets | (20,636 | ) | 99,271 | 66,634 | (33 | ) | 145,236 | |||||||||||||
Intercompany receivables | 298,812 | 1,254,727 | 55,847 | (1,609,386 | ) | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total current assets | 293,992 | 1,846,978 | 880,918 | (1,615,151 | ) | 1,406,737 | ||||||||||||||
Property, plant and equipment, net | 2,679 | 293,260 | 239,082 | (552 | ) | 534,469 | ||||||||||||||
Goodwill | — | 1,820,438 | 1,227,967 | — | 3,048,405 | |||||||||||||||
Other intangible assets with indefinite lives | — | 14,600 | 21,851 | — | 36,451 | |||||||||||||||
Finite-lived intangible assets, net | 24,701 | 1,132,656 | 676,868 | — | 1,834,225 | |||||||||||||||
Deferred financing costs, net and other non-current assets | 78,522 | 10,341 | 20,065 | (71 | ) | 108,857 | ||||||||||||||
Investments in subsidiaries | 4,114,478 | 358,088 | (67,799 | ) | (4,404,767 | ) | — | |||||||||||||
Investments in unconsolidated entities | 33,979 | — | 56,512 | — | 90,491 | |||||||||||||||
Deferred tax assets | — | 782 | 7,511 | — | 8,293 | |||||||||||||||
Intercompany notes receivable | 1,724,650 | 722,552 | 1,278 | (2,448,480 | ) | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total assets | $ | 6,273,001 | $ | 6,199,695 | $ | 3,064,253 | $ | (8,469,021 | ) | $ | 7,067,928 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
LIABILITIES AND EQUITY | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Current portion of long-term debt | $ | 45,000 | $ | 349 | $ | 14,883 | $ | — | $ | 60,232 | ||||||||||
Current portion of capital lease obligations | — | 3,209 | 3,475 | — | 6,684 | |||||||||||||||
Accounts payable | 7,993 | 76,256 | 85,725 | — | 169,974 | |||||||||||||||
Accrued expenses and other current liabilities | (388,830 | ) | 586,116 | 214,659 | (26 | ) | 411,919 | |||||||||||||
Intercompany payables | 557,578 | 806,507 | 245,300 | (1,609,385 | ) | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total current liabilities | 221,741 | 1,472,437 | 564,042 | (1,609,411 | ) | 648,809 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Long-term liabilities: | ||||||||||||||||||||
Long-term debt, net of current portion | 3,617,068 | 374 | 11,233 | — | 3,628,675 | |||||||||||||||
Capital lease obligations, net of current portion | — | 5,412 | 7,505 | — | 12,917 | |||||||||||||||
Deferred tax liabilities | (5,329 | ) | 333,388 | 100,216 | (87 | ) | 428,188 | |||||||||||||
Other long-term liabilities | 17,678 | 72,890 | 76,138 | (71 | ) | 166,635 | ||||||||||||||
Intercompany notes payables | 241,421 | 1,630,376 | 576,684 | (2,448,481 | ) | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total long-term liabilities | 3,870,838 | 2,042,440 | 771,776 | (2,448,639 | ) | 4,236,415 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Stockholders’ equity | 2,180,422 | 2,684,818 | 1,726,153 | (4,410,971 | ) | 2,180,422 | ||||||||||||||
Non- controlling interests | — | — | 2,282 | — | 2,282 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total equity | 2,180,422 | 2,684,818 | 1,728,435 | (4,410,971 | ) | 2,182,704 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total liabilities and equity | $ | 6,273,001 | $ | 6,199,695 | $ | 3,064,253 | $ | (8,469,021 | ) | $ | 7,067,928 | |||||||||
|
|
|
|
|
|
|
|
|
|
F-82
Table of Contents
ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(24) Guarantor Financial Information (Continued)
CONSOLIDATING BALANCE SHEET
December 31, 2011
(in thousands)
Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
ASSETS | ||||||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 12,451 | $ | 95,212 | $ | 191,510 | $ | — | $ | 299,173 | ||||||||||
Restricted cash | — | 1,691 | 7,296 | — | 8,987 | |||||||||||||||
Marketable securities | — | 976 | 110 | — | 1,086 | |||||||||||||||
Accounts receivable, net of allowances | — | 218,863 | 256,961 | — | 475,824 | |||||||||||||||
Inventories, net | — | 136,271 | 189,706 | (5,708 | ) | 320,269 | ||||||||||||||
Deferred tax assets | 10,912 | 24,244 | 5,835 | 1,984 | 42,975 | |||||||||||||||
Prepaid expenses and other current assets | (74,078 | ) | 142,183 | 77,308 | — | 145,413 | ||||||||||||||
Intercompany receivables | 397,914 | 436,630 | 15,637 | (850,181 | ) | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total current assets | 347,199 | 1,056,070 | 744,363 | (853,905 | ) | 1,293,727 | ||||||||||||||
Property, plant and equipment, net | 2,542 | 287,561 | 201,233 | (131 | ) | 491,205 | ||||||||||||||
Goodwill | — | 1,680,208 | 1,145,907 | (4,844 | ) | 2,821,271 | ||||||||||||||
Other intangible assets with indefinite lives | — | 12,900 | 56,646 | — | 69,546 | |||||||||||||||
Finite-lived intangible assets, net | 28,685 | 1,124,004 | 633,236 | — | 1,785,925 | |||||||||||||||
Deferred financing costs, net, and other non-current assets | 88,153 | 5,673 | 19,415 | — | 113,241 | |||||||||||||||
Investments in subsidiaries | 3,586,625 | 46,565 | 112,756 | (3,745,946 | ) | — | ||||||||||||||
Investments in unconsolidated entities | 29,021 | — | 56,117 | — | 85,138 | |||||||||||||||
Marketable securities | 2,254 | — | — | — | 2,254 | |||||||||||||||
Deferred tax assets | — | (1,683 | ) | 12,077 | — | 10,394 | ||||||||||||||
Intercompany notes receivable | 1,934,366 | (196,820 | ) | — | (1,737,546 | ) | — | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total assets | $ | 6,018,845 | $ | 4,014,478 | $ | 2,981,750 | $ | (6,342,372 | ) | $ | 6,672,701 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
LIABILITIES AND EQUITY | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Current portion of long-term debt | $ | 43,000 | $ | 353 | $ | 17,739 | $ | — | $ | 61,092 | ||||||||||
Current portion of capital lease obligations | — | 1,550 | 4,533 | — | 6,083 | |||||||||||||||
Short-term debt | 6,240 | — | — | — | 6,240 | |||||||||||||||
Accounts payable | 6,704 | 55,414 | 93,346 | — | 155,464 | |||||||||||||||
Accrued expenses and other current liabilities | (259,010 | ) | 480,475 | 174,108 | — | 395,573 | ||||||||||||||
Intercompany payables | 429,644 | 104,817 | 315,718 | (850,179 | ) | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total current liabilities | 226,578 | 642,609 | 605,444 | (850,179 | ) | 624,452 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Long-term liabilities: | ||||||||||||||||||||
Long-term debt, net of current portion | 3,243,341 | 100 | 24,010 | — | 3,267,451 | |||||||||||||||
Capital lease obligations, net of current portion | — | 2,175 | 10,454 | — | 12,629 | |||||||||||||||
Deferred tax liabilities | (25,936 | ) | 300,016 | 106,551 | 69 | 380,700 | ||||||||||||||
Other long-term liabilities | 24,407 | 57,515 | 71,476 | — | 153,398 | |||||||||||||||
Intercompany notes payables | 321,221 | 787,457 | 625,767 | (1,734,445 | ) | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total long-term liabilities | 3,563,033 | 1,147,263 | 838,258 | (1,734,376 | ) | 3,814,178 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Redeemable non-controlling interest | — | — | 2,497 | — | 2,497 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Stockholders’ equity | 2,229,234 | 2,224,606 | 1,533,211 | (3,757,817 | ) | 2,229,234 | ||||||||||||||
Non-controlling interests | — | — | 2,340 | — | 2,340 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total equity | 2,229,234 | 2,224,606 | 1,535,551 | (3,757,817 | ) | 2,231,574 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total liabilities and equity | $ | 6,018,845 | $ | 4,014,478 | $ | 2,981,750 | $ | (6,342,372 | ) | $ | 6,672,701 | |||||||||
|
|
|
|
|
|
|
|
|
|
F-83
Table of Contents
ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(24) Guarantor Financial Information (Continued)
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2012
(in thousands)
Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Cash Flows from Operating Activities: | ||||||||||||||||||||
Net income (loss) | $ | (77,907 | ) | $ | 126,985 | $ | 22,115 | $ | (149,100 | ) | $ | (77,907 | ) | |||||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||||||||||||||
Equity in earnings of subsidiaries, net of tax | (148,394 | ) | 1,574 | — | 146,820 | — | ||||||||||||||
Non-cash interest expense, including amortization of original issue discounts and deferred financing costs | 21,213 | 277 | — | — | 21,490 | |||||||||||||||
Depreciation and amortization | 7,961 | 266,256 | 182,651 | (21 | ) | 456,847 | ||||||||||||||
Non-cash charges for sale of inventories revalued at the date of acquisition | — | 1,400 | 3,281 | — | 4,681 | |||||||||||||||
Non-cash stock-based compensation expense | 4,247 | 5,486 | 5,932 | — | 15,665 | |||||||||||||||
Impairment of inventory | — | 5 | 290 | — | 295 | |||||||||||||||
Impairment of long-lived assets | — | 2,903 | 586 | — | 3,489 | |||||||||||||||
Impairment of intangible assets | — | 2,988 | — | — | 2,988 | |||||||||||||||
(Gain) loss on sale of fixed assets | 4 | (2,672 | ) | 517 | — | (2,151 | ) | |||||||||||||
Gain on sales of marketable securities | (751 | ) | — | — | — | (751 | ) | |||||||||||||
Equity earnings of unconsolidated entities, net of tax | (2,205 | ) | — | (10,952 | ) | (88 | ) | (13,245 | ) | |||||||||||
Deferred income taxes | 20,500 | (79,764 | ) | (24,342 | ) | (962 | ) | (84,568 | ) | |||||||||||
Other non-cash items | 22,234 | 908 | 7,429 | — | 30,571 | |||||||||||||||
Changes in assets and liabilities, net of acquisitions: | ||||||||||||||||||||
Accounts receivable, net | — | (656 | ) | (21,509 | ) | — | (22,165 | ) | ||||||||||||
Inventories, net | — | (6,032 | ) | (13,661 | ) | 2,902 | (16,791 | ) | ||||||||||||
Prepaid expenses and other current assets | (454,780 | ) | 358,943 | (1,776 | ) | 95,087 | (2,526 | ) | ||||||||||||
Accounts payable | 1,289 | 3,251 | (14,667 | ) | — | (10,127 | ) | |||||||||||||
Accrued expenses and other current liabilities | 335,600 | (227,338 | ) | 36,250 | (95,081 | ) | 49,431 | |||||||||||||
Other non-current liabilities | (12,373 | ) | (117 | ) | (22,983 | ) | (70 | ) | (35,543 | ) | ||||||||||
Intercompany payable (receivable) | 413,479 | (411,169 | ) | (1,148 | ) | (1,162 | ) | — | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash provided by (used in) operating activities | 130,117 | 43,228 | 148,013 | (1,675 | ) | 319,683 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Cash Flows from Investing Activities: | ||||||||||||||||||||
Decrease in restricted cash | — | 12 | 5,899 | — | 5,911 | |||||||||||||||
Purchases of property, plant and equipment | (2,061 | ) | (91,681 | ) | (109,613 | ) | 65,962 | (137,393 | ) | |||||||||||
Proceeds from sale of property, plant and equipment | — | 22,860 | 65,747 | (66,217 | ) | 22,390 | ||||||||||||||
Cash paid for acquisitions, net of cash acquired | (403,552 | ) | 1,469 | (22,503 | ) | — | (424,586 | ) | ||||||||||||
Proceeds from sales of marketable securities | 2,784 | 269 | 3 | — | 3,056 | |||||||||||||||
Net cash received from equity method investments | 1,470 | — | 11,237 | — | 12,707 | |||||||||||||||
Increase in other assets | (53,189 | ) | (1,026 | ) | (2,131 | ) | 70 | (56,276 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash used in investing activities | (454,548 | ) | (68,097 | ) | (51,361 | ) | (185 | ) | (574,191 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Cash Flows from Financing Activities: | ||||||||||||||||||||
Cash paid for financing costs | (10,139 | ) | — | — | — | (10,139 | ) | |||||||||||||
Cash paid for contingent purchase price consideration | (20,116 | ) | (788 | ) | (60 | ) | — | (20,964 | ) | |||||||||||
Cash paid for dividends | (21,293 | ) | — | — | — | (21,293 | ) | |||||||||||||
Proceeds from issuance of common stock, net of issuance costs | 14,924 | — | — | — | 14,924 | |||||||||||||||
Proceeds from issuance of long-term debt | 648,000 | — | 535 | — | 648,535 | |||||||||||||||
Payments on short-term debt | (6,240 | ) | — | — | — | (6,240 | ) | |||||||||||||
Payments on long-term debt | (300,155 | ) | (534 | ) | (10,923 | ) | — | (311,612 | ) | |||||||||||
Net proceeds (payments) under revolving credit facilities | 22,500 | (2 | ) | (8,226 | ) | — | 14,272 | |||||||||||||
Excess tax benefits on exercised stock options | 176 | 303 | 25 | — | 504 | |||||||||||||||
Principal payments on capital lease obligations | — | (2,347 | ) | (4,656 | ) | — | (7,003 | ) | ||||||||||||
Purchase of non-controlling interest | — | — | (2,972 | ) | — | (2,972 | ) | |||||||||||||
Other | (12,267 | ) | — | — | — | (12,267 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash provided by (used in) financing activities | 315,390 | (3,368 | ) | (26,277 | ) | — | 285,745 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Foreign exchange effect on cash and cash equivalents | 213 | 474 | (4,611 | ) | 1,860 | (2,064 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net increase (decrease) in cash and cash equivalents | (8,828 | ) | (27,763 | ) | 65,764 | — | 29,173 | |||||||||||||
Cash and cash equivalents, beginning of period | 12,451 | 95,212 | 191,510 | — | 299,173 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Cash and cash equivalents, end of period | $ | 3,623 | $ | 67,449 | $ | 257,274 | $ | — | $ | 328,346 | ||||||||||
|
|
|
|
|
|
|
|
|
|
F-84
Table of Contents
ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(24) Guarantor Financial Information (Continued)
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2011
(in thousands)
Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Cash Flows from Operating Activities: | ||||||||||||||||||||
Net income (loss) | $ | (133,309 | ) | (281,955 | ) | 303,125 | $ | (21,170 | ) | $ | (133,309 | ) | ||||||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||||||||||||||
Equity in earnings of subsidiaries, net of tax | (23,524 | ) | (1,530 | ) | — | 25,054 | — | |||||||||||||
Non-cash interest expense, including amortization of original issue discounts and deferred financing costs | 13,671 | 23,473 | 446 | — | 37,590 | |||||||||||||||
Depreciation and amortization | 3,842 | 260,062 | 128,111 | (439 | ) | 391,576 | ||||||||||||||
Non-cash charges for sale of inventories revalued at the date of acquisition | — | — | 6,010 | — | 6,010 | |||||||||||||||
Non-cash stock-based compensation expense | 5,776 | 8,390 | 7,049 | — | 21,215 | |||||||||||||||
Impairment of inventory | — | 172 | 273 | — | 445 | |||||||||||||||
Impairment of long-lived assets | 3 | 1,331 | 215 | — | 1,549 | |||||||||||||||
Impairment of goodwill | — | 383,612 | — | — | 383,612 | |||||||||||||||
Impairment of intangible assets | — | 2,935 | 3 | — | 2,938 | |||||||||||||||
Gain on sale of joint venture interest | (16,309 | ) | — | (272,587 | ) | — | (288,896 | ) | ||||||||||||
(Gain) loss on sale of fixed assets | 75 | 1,655 | (153 | ) | — | 1,577 | ||||||||||||||
Gain on sales of marketable securities | — | — | (840 | ) | — | (840 | ) | |||||||||||||
Equity earnings of unconsolidated entities, net of tax | (1,952 | ) | — | (6,503 | ) | (69 | ) | (8,524 | ) | |||||||||||
Deferred income taxes | 35,012 | (81,063 | ) | (8,754 | ) | (1,956 | ) | (56,761 | ) | |||||||||||
Other non-cash items | (4,286 | ) | 3,971 | (11,932 | ) | — | (12,247 | ) | ||||||||||||
Changes in assets and liabilities, net of acquisitions: | ||||||||||||||||||||
Accounts receivable, net | — | 260 | (39,668 | ) | — | (39,408 | ) | |||||||||||||
Inventories, net | — | (9,458 | ) | (9,035 | ) | (1,906 | ) | (20,399 | ) | |||||||||||
Prepaid expenses and other current assets | 72,955 | (110,333 | ) | (15,737 | ) | — | (53,115 | ) | ||||||||||||
Accounts payable | (233 | ) | (11,454 | ) | 18,672 | — | 6,985 | |||||||||||||
Accrued expenses and other current liabilities | (231,949 | ) | 203,333 | 42,898 | — | 14,282 | ||||||||||||||
Other non-current liabilities | 35,109 | 1,636 | (19,772 | ) | — | 16,973 | ||||||||||||||
Intercompany payable (receivable) | (1,512,567 | ) | 1,015,286 | 497,281 | — | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash provided by (used in) operating activities | (1,757,686 | ) | 1,410,323 | 619,102 | (486 | ) | 271,253 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Cash Flows from Investing Activities: | ||||||||||||||||||||
(Increase) decrease in restricted cash | — | 48 | (6,454 | ) | — | (6,406 | ) | |||||||||||||
Purchases of property, plant and equipment | 20 | (67,103 | ) | (65,880 | ) | 431 | (132,532 | ) | ||||||||||||
Proceeds from sale of property, plant and equipment | — | 292 | 655 | — | 947 | |||||||||||||||
Proceeds from disposition of business | — | — | 11,491 | — | 11,491 | |||||||||||||||
Cash paid for acquisitions, net of cash acquired | (37,644 | ) | (163,379 | ) | (430,288 | ) | — | (631,311 | ) | |||||||||||
Proceeds from sales of marketable securities | — | 145 | 9,057 | — | 9,202 | |||||||||||||||
Net cash paid for equity method investments | (2,430 | ) | — | (119,473 | ) | — | (121,903 | ) | ||||||||||||
(Increase) decrease in other assets | (24,996 | ) | (7,913 | ) | 6,379 | (1,154 | ) | (27,684 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash used in investing activities | (65,050 | ) | (237,910 | ) | (594,513 | ) | (723 | ) | (898,196 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Cash Flows from Financing Activities: | ||||||||||||||||||||
Cash paid for financing costs | (73,876 | ) | (804 | ) | — | — | (74,680 | ) | ||||||||||||
Cash paid for contingent purchase price consideration | (28,305 | ) | — | — | — | (28,305 | ) | |||||||||||||
Cash paid for dividends | (5,425 | ) | — | — | — | (5,425 | ) | |||||||||||||
Proceeds from issuance of common stock, net of issuance costs | 37,886 | — | — | — | 37,886 | |||||||||||||||
Repurchase of preferred stock | (99,070 | ) | — | — | — | (99,070 | ) | |||||||||||||
Proceeds from issuance of long-term debt | 2,100,000 | 1,238 | (4,961 | ) | — | 2,096,277 | ||||||||||||||
Payments on long-term debt | (10,126 | ) | (1,192,544 | ) | (4,784 | ) | — | (1,207,454 | ) | |||||||||||
Net proceeds under revolving credit facilities | — | — | 10,715 | — | 10,715 | |||||||||||||||
Repurchase of common stock | (184,867 | ) | — | — | — | (184,867 | ) | |||||||||||||
Excess tax benefits on exercised stock options | 1,357 | 414 | 1,652 | — | 3,423 | |||||||||||||||
Principal payments on capital lease obligations | — | (2,372 | ) | (1,791 | ) | — | (4,163 | ) | ||||||||||||
Other | (4,053 | ) | — | (204 | ) | — | (4,257 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash provided by (used in) financing activities | 1,733,521 | (1,194,068 | ) | 627 | — | 540,080 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Foreign exchange effect on cash and cash equivalents | — | (38 | ) | (16,441 | ) | 1,209 | (15,270 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net increase (decrease) in cash and cash equivalents | (89,215 | ) | (21,693 | ) | 8,775 | — | (102,133 | ) | ||||||||||||
Cash and cash equivalents, beginning of period | 101,666 | 116,905 | 182,735 | — | 401,306 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Cash and cash equivalents, end of period | $ | 12,451 | $ | 95,212 | $ | 191,510 | $ | — | $ | 299,173 | ||||||||||
|
|
|
|
|
|
|
|
|
|
F-85
Table of Contents
ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(24) Guarantor Financial Information (Continued)
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2010
(in thousands)
Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Cash Flows from Operating Activities: | ||||||||||||||||||||
Net loss | $ | (1,015,892 | ) | $ | (929,750 | ) | $ | (9,988 | ) | $ | 939,738 | $ | (1,015,892 | ) | ||||||
Income from discontinued operations, net of tax | 574 | 9,727 | 1,096 | — | 11,397 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Loss from continuing operations | (1,016,466 | ) | (939,477 | ) | (11,084 | ) | 939,738 | (1,027,289 | ) | |||||||||||
Adjustments to reconcile loss from continuing operations to net cash provided by (used in) operating activities: | ||||||||||||||||||||
Equity in earnings of subsidiaries, net of tax | 940,121 | — | — | (940,121 | ) | — | ||||||||||||||
Non-cash interest expense, including amortization of original issue discounts and write-off of deferred financing costs | 6,311 | 6,279 | 1,168 | — | 13,758 | |||||||||||||||
Depreciation and amortization | 663 | 266,476 | 99,528 | (479 | ) | 366,188 | ||||||||||||||
Non-cash charges for sale of inventories revalued at the date of acquisition | — | — | 6,602 | — | 6,602 | |||||||||||||||
Non-cash stock-based compensation expense | 9,498 | 9,648 | 10,733 | — | 29,879 | |||||||||||||||
Impairment of inventory | — | 261 | 587 | — | 848 | |||||||||||||||
Impairment of long-lived assets | — | 1,473 | (62 | ) | — | 1,411 | ||||||||||||||
Impairment of goodwill | — | 1,006,357 | — | — | 1,006,357 | |||||||||||||||
Loss on sale of fixed assets | — | 719 | 279 | — | 998 | |||||||||||||||
Gain on sale of marketable securities | (4,190 | ) | — | (314 | ) | — | (4,504 | ) | ||||||||||||
Equity earnings of unconsolidated entities, net of tax | (2,023 | ) | — | (8,680 | ) | 137 | (10,566 | ) | ||||||||||||
Deferred income taxes | 3,340 | (55,459 | ) | (22,299 | ) | — | (74,418 | ) | ||||||||||||
Other non-cash items | (981 | ) | 3,608 | 1,175 | — | 3,802 | ||||||||||||||
Changes in assets and liabilities, net of acquisitions: | ||||||||||||||||||||
Accounts receivable, net | — | (4,300 | ) | (5,060 | ) | — | (9,360 | ) | ||||||||||||
Inventories, net | — | (2,012 | ) | (21,297 | ) | 464 | (22,845 | ) | ||||||||||||
Prepaid expenses and other current assets | (81 | ) | 4,476 | 3,915 | — | 8,310 | ||||||||||||||
Accounts payable | 4,358 | (1,529 | ) | (11,917 | ) | — | (9,088 | ) | ||||||||||||
Accrued expenses and other current liabilities | (60,601 | ) | 63,580 | 19,223 | — | 22,202 | ||||||||||||||
Other non-current liabilities | (5 | ) | 121 | (27,568 | ) | — | (27,452 | ) | ||||||||||||
Intercompany payable (receivable) | (296,816 | ) | (139,312 | ) | 436,128 | — | — | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash provided by (used in) continuing operations | (416,872 | ) | 220,909 | 471,057 | (261 | ) | 274,833 | |||||||||||||
Net cash provided by (used in) discontinued operations | 849 | (258 | ) | — | — | 591 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash provided by (used in) operating activities | (416,023 | ) | 220,651 | 471,057 | (261 | ) | 275,424 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Cash Flows from Investing Activities: | ||||||||||||||||||||
(Increase) decrease in restricted cash | — | (163 | ) | 22 | — | (141 | ) | |||||||||||||
Purchases of property, plant and equipment | (82 | ) | (56,922 | ) | (39,498 | ) | 261 | (96,241 | ) | |||||||||||
Proceeds from sale of property, plant and equipment | — | 73 | 722 | — | 795 | |||||||||||||||
Cash paid for acquisitions, net of cash acquired | (184,975 | ) | (32,279 | ) | (306,253 | ) | — | (523,507 | ) | |||||||||||
Proceeds from sales (purchases) of marketable securities | 4,190 | — | (1,008 | ) | — | 3,182 | ||||||||||||||
Net cash received from equity method investments | 1,317 | 44 | 10,993 | — | 12,354 | |||||||||||||||
Increase in other assets | (5,600 | ) | (695 | ) | (6,605 | ) | — | (12,900 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash used in continuing operations | (185,150 | ) | (89,942 | ) | (341,627 | ) | 261 | (616,458 | ) | |||||||||||
Net cash provided by (used in) discontinued operations | (849 | ) | 61,445 | 2,000 | — | 62,596 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash used in investing activities | (185,999 | ) | (28,497 | ) | (339,627 | ) | 261 | (553,862 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Cash Flows from Financing Activities: | ||||||||||||||||||||
Cash paid for financing costs | (9,552 | ) | (3,493 | ) | — | — | (13,045 | ) | ||||||||||||
Proceeds from issuance of common stock, net of issuance costs | 19,024 | — | — | — | 19,024 | |||||||||||||||
Proceeds from issuance of long-term debt | 400,000 | — | — | — | 400,000 | |||||||||||||||
Payments on long-term debt | — | (9,750 | ) | — | — | (9,750 | ) | |||||||||||||
Net payments under revolving credit facilities | — | (144,181 | ) | (2,600 | ) | — | (146,781 | ) | ||||||||||||
Excess tax benefits on exercised stock options | 1,030 | 264 | 389 | — | 1,683 | |||||||||||||||
Principal payments on capital lease obligations | — | (1,501 | ) | (366 | ) | — | (1,867 | ) | ||||||||||||
Purchase of non-controlling interest | — | — | (52,864 | ) | — | (52,864 | ) | |||||||||||||
Other | (141 | ) | — | — | — | (141 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash provided by (used in) financing activities | 410,361 | (158,661 | ) | (55,441 | ) | — | 196,259 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Foreign exchange effect on cash and cash equivalents | — | — | (9,288 | ) | — | (9,288 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net increase (decrease) in cash and cash equivalents | (191,661 | ) | 33,493 | 66,701 | — | (91,467 | ) | |||||||||||||
Cash and cash equivalents, beginning of period | 293,327 | 83,412 | 116,034 | — | 492,773 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Cash and cash equivalents, end of period | $ | 101,666 | $ | 116,905 | $ | 182,735 | $ | — | $ | 401,306 | ||||||||||
|
|
|
|
|
|
|
|
|
|
F-86
Table of Contents
ALERE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(25) Subsequent Events
(a) Epocal
In November 2009, we entered into a definitive agreement to acquire all of the issued and outstanding equity securities of Epocal, Inc. As amended as of December 31, 2012, that agreement provided for a total potential purchase price of up to $263.0 million, including milestone payments of up to $90.5 million if Epocal achieves certain milestones relating to its gross margin and product development efforts on or prior to October 31, 2014. The agreement contains a working capital adjustment whereby the purchase price is increased or decreased to the extent that Epocal’s working capital at closing is more or less than a specified amount. We also agreed that, if the acquisition is consummated, we will provide $12.5 million in management incentive arrangements, 25% of which will vest over three years and 75% of which will be payable only upon the achievement of certain milestones.
In February 2013, we completed the acquisition of Epocal. After working capital and other adjustments made at closing, we paid approximately $166.0 million in cash to acquire Epocal, which included a $15.0 million payment for the achievement of the first two financial milestones specified in the agreement. Additional earn-out payments of up to $75.5 million could be triggered if milestones linked to the delivery of additional product offerings on the Epocal platform are achieved.
(b) Short-Term Note
In December 2012, we made a $40.0 million secured loan to a third party (the Short-Term Note) (Note 3 (b)) in connection with a potential acquisition. As of December 31, 2012, the loan is included at face value in prepaid expenses and other current assets on our Consolidated Balance Sheet. In February 2013, the issuer of the Short-Term Note filed for protection under Chapter 11 of the U.S. Bankruptcy Code. The Bankruptcy Court subsequently granted us “continuing, valid, binding, enforceable and perfected first priority liens and security interests” in all of the post-petition collateral of the debtor to the “same extent, priority and enforceability” held on pre-petition collateral, in order to secure any and all obligations of the debtor to us under the Short-Term Note, and other related agreements. The Bankruptcy Court further directed the debtor to pay us post-petition interest at the contractual default rate and at the times set forth in the Short-Term Note.
We have assessed our Short Term Note for impairment and considered the following factors: we have a perfected first priority lien in all of the post-petition collateral of the debtor, and the value of the available collateral, as represented by the debtor to the Bankruptcy Court, significantly exceeds the amount that is owed to us under the Short-Term Note. Based on these factors, along with the protections afforded to us as a secured creditor under bankruptcy law, we have determined that the Short-Term Note is fully realizable and, accordingly, we have not recorded a reserve against the amount receivable as of December 31, 2012. The bankruptcy process is inherently complicated and subject to uncertainties and future changes in circumstances and there can be no certainty as to the outcome of these proceedings.
F-87